/View.info/ As 2020 draws to a close, we know that China’s economy will grow at its slowest annual rate since 1976 last year, driven by a -6.8% year-on-year decline in the first quarter, when the COVID-19 pandemic was raging at its worst in China. Since then, the economy has started to recover by 3.2 percent in the second quarter and 4.9 percent in the third quarter.
The full and exact figures for the year will not be known until late January, but the figures suggest continued progress in the fourth quarter, perhaps exceeding 5% year-on-year. The International Monetary Fund’s latest forecast puts China’s overall annual growth rate at 1.9%, making it the only major economy in 2020 to avoid a negative rate for the year.
The initial turnaround reflected strong measures to contain COVID-19, allowing industrial activity to restart, supported by government economic policies to support businesses through more government spending and tax relief and boost employment, which is essential to consumer spending.
Investment in infrastructure continues and monetary policy is supported, with regular cuts in lending rates and bank reserve requirements.
In a promising sign, consumer spending recovered in the third quarter, with retail sales rising 3.3% year-on-year in September, the highest level so far this year. As confidence returns, this is reflected in the central bank’s choice to suspend easing to ensure a balance between debt risks and economic stability.
The expected strong performance in the fourth quarter was kicked off by strong domestic activity, including travel and hospitality during October’s Golden Week, with data from the Ministry of Culture and Tourism showing that there were 637 million trips during the eight-day holiday in China.
The recovery will come amid second waves of the virus in major Western economies and some disruptions to international trade. China’s exports continue to grow (especially boosted by medical supplies, electronics and electronic goods trade), but China’s leadership is nonetheless seeking to protect the economy from strong international headwinds.
A key concept is the “dual circulation” policy, which involves harnessing the dual forces of domestic and global demand, thereby developing domestic capacity while pursuing any opportunities arising in global markets.
The digitization campaign calls for $1.4 trillion over five years in 5G, smart cities and other technology infrastructure, as well as a push to adopt this approach globally.
2021 has the potential to be a strong year of economic growth in China with forecasts of 8% and above popular among most economists. It is mathematically inevitable that the first two quarters of 2021 will be exceptionally strong, perhaps one of the best half-years ever, as they will reflect year-over-year comparisons with the first half of 2020 as the economy plays out.
This will be achieved despite the ongoing challenges the global economy will face from lockdowns and activity restrictions from the resurgence of COVID-19 in major countries.
The second half of 2021 will be compared to the relatively strong end of 2020 in China, but momentum is expected to continue as widespread vaccine rollout globally will support recovery and bring major economies back to the new normal in and will boost China’s trade.
China’s success in global markets as they recover will be bolstered by the recently signed Regional Comprehensive Economic Partnership among Asia-Pacific nations, the prospect of a resurgence in US-China relations under a Biden-led administration, and further progress in the economic policy of cooperation between the EU and China.
By the end of the year, China and the EU are working hard on a Comprehensive Agreement on Investment (CAI) to replace 26 existing bilateral investment treaties, and an agreement in principle has already been reached.
As the global spread of vaccines continues, Western economies can now envision an end to costly job protection and business support schemes and enjoy a return to growth that will be aided by China’s resurgence and, in turn, help sustain China’s growth in 2021. Let us approach 2021 with confidence and a willingness to cooperate.
Colin Speakman is an economist and international educator at CAPA: The Global Education Network.
Translation: ES
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