China’s first quarter macro results are a mix of fantasy and real life, and distinguishing between the two are important for understanding the sustainability of the post-pandemic economic recovery.

The fantasy is the year-on-year (YoY) comparison to the first quarter of last year, when much of China was shuttered in response to COVID-19. The weak base results in figures such as a 33.9% YoY rise in real (inflation-adjusted) retail sales, because those sales declined 22% in the first quarter of last year. Similarly, industrial value-added rose 24.5% YoY in 1Q21, following an 8.4% decline a year ago. The base effect also generated a fantastical 1Q21 GDP growth rate of 18.3%, as GDP fell 6.8% YoY in 1Q20.

Clearly, comparisons to the first quarter of last year are not a useful guide to the coming quarters. Real life, however, can be discerned by comparing the latest data to pre-pandemic, 1Q19 data. This comparison reflects a healthy, sustainable, domestic-demand driven economy, albeit one which has not yet fully shaken off all of the impact of the pandemic.

Real retail sales, for example, rose 4.6% in 1Q21, compared to pre-pandemic 1Q19. Another, helpful perspective is that the compound annual growth rate (CAGR) of real retail sales was 2.3% over the last two years, compared to a 6.9% YoY pace in 1Q19. Consumer spending is bouncing back, but still has a ways to go to catch up to its pre-COVID growth, as lingering health concerns continue to depress desires to gather indoors.

Industrial value-added in the first quarter of this year rose 14% compared to 1Q19. The CAGR was 6.8% over the last two years, faster than the 6.5% rise in 1Q19. Manufacturing has recovered from the virus.

GDP expanded by 10.3% over the same period two years ago. The CAGR was 5.0% over the last two years. A fast pace but a bit weaker than the 6.3% YoY rate in 1Q19.