Good News, China's Growing Again. Just Don't Ask How

For all the talk about the pandemic producing a new normal, China’s economic picture sure looks a lot like the past. Exports and industrial production are moving ahead, and the government has big plans for infrastructure spending. Shoppers have taken a back seat, constrained by social distancing and job losses. Not so long ago, consumers were seen as the vanguard of a rebalanced economy, which grew to become the world’s second largest. Relying on shipments abroad, factories and massive public works was considered passe.

This tilt backward is borne out in the data. On Thursday, China reported gross domestic product increased 3.2% from a year earlier. That’s better than forecast and a big improvement from the 6.8% decline during the first three months of the year.

Yet the bright spots carry their own complications. Industrial production climbed 4.8% in June and has recovered to pre-virus levels. Retail sales, the weakest link in the rebound, disappointed again, sliding 1.8% instead of the anticipated increase. Meanwhile, a separate report Tuesday showed both exports and imports gaining; the trade surplus shrank.

This mix is understandable, but it’s not where Beijing wants to be. Through the past decade, no communique from the International Monetary Fund, G-20 or any multilateral organization was complete without references to the need to reposition China’s economy. Investment in the mainland by Western manufacturers, relatively cheap exports, factory job losses in the U.S. and a managed currency created political headaches.