Unlike other major economies, China has rebounded and its recovery is accelerating. It could fuel a third of global economic growth in 2021.
With the Spring Festival holidays just weeks away, recent resurgences of COVID-19 infections in Jilin province and Shijiazhuang, Hebei province have renewed concerns about sporadic outbreaks.
China’s public-health authorities believe a major outbreak of the novel coronavirus in the Chinese mainland is unlikely. The authorities have taken strong containment measures to rapidly identify, isolate and control potential outbreaks.
Nonetheless, despite the holidays, Chinese people have been urged to avoid travels, to keep the infection rate under control. Downside risks permit no complacency in the foreseeable future.
In the light of the lockdowns in major economies and the number of global cumulative cases at 100 million, current Chinese figures are marginal. International risks associated with the pandemic and external demand are a different story.
Already variants of the virus, identified in the United Kingdom, Brazil, South Africa, and the United States have shown to be more transmissible. New adverse mutations loom in the horizon.
As the World Health Organization recently cautioned, the first half of 2021 may be tougher than 2020, at least in the United States, Western Europe and even Japan.
The question is, will China’s recovery prevail amid the dire global landscape?
Key indexes signal broad recovery
In 2020, China was the only major economy to avoid negative economic growth. Amid the pandemic and perhaps the severest contraction in modern history, China’s real GDP growth of 2.3 percent exceeded expectations.
The performance relied on fiscal and monetary support, but as recovery is accelerating, monetary easing no longer seems warranted. In the mid-December Central Economic Work Conference, the top authorities took note of the economic success, while stressing the need to further foster the foundations of recovery.
Although consumption is still constrained, recovery is accelerating. And investment is likely to be buoyed by government-financed infrastructure projects and solid performance in the property market.
In November, the indexes for manufacturing, service, trade and consumption were encouraging. Growth in the 4th quarter of last year rose to 6.5 percent year-on-year as consumers returned to malls, restaurants and cinemas.
According to the National Bureau of Statistics, both production and demand indicate the economy is “recovering steadily.” That signals across-the-board recovery. As a result, the yuan has surged in strength against the US dollar and other major currencies, which could foster Chinese companies’ mergers and acquisitions.
This year China’s economic growth is widely expected to rise further to or above 8 percent. Rapid recovery has brought Chinese economy closer to the US economic output, which it could surpass by the late 2020s.
Structural reforms prevail, financial integration accelerating
China has taken vital policy steps, including the implementation of the Foreign Investment Law, to further open up its economy. Despite the Sino-US tensions, foreign companies continue to pour money into China. In real terms, inbound foreign direct investment in China hit a record high of $144 billion in 2020.
In November, China signed the Regional Comprehensive Economic Partnership (RCEP) agreement with the 10 ASEAN member states, plus Japan, South Korea, Australia and New Zealand. That will facilitate regional trade and boost economic recovery in the participating countries and the region.
Despite the Trump tariff wars, the impressive increase in China’s exports pushed the trade surplus to a record high in December, with soaring demand for medical and other products needed to fight the pandemic, especially medical equipment and work-from-home technology. Due to the effective containment of the epidemic in the 2nd quarter, Chinese factories could respond to the global demand for such products, while other countries struggled with quarantines and lockdowns.
The Trump administration’s measures to delist Chinese companies from the US stock exchanges and prohibit US investment in Chinese companies failed to halt, let alone reverse, deeper financial integration between the Chinese and US economies.
In effect, the integration of the Chinese financial market with the global financial markets has accelerated. China’s regulatory reforms have opened its financial markets to many foreign financial institutions, including those in the US. Consequently, foreign ownership of onshore Chinese stocks and bonds is likely to increase in 2021.
China fueling over a third of global growth prospects
Despite rising protectionism, geopolitics, the COVID-19 pandemic and the severe global economic recession, China has persisted in its quest for opening-up. That has had positive spillover effects on global economic recovery.
Focused on strengthening the social safety nets and advancing key reforms, China will continue to foster its recovery and try to ensure balanced, high-quality growth. That, in turn, will benefit both China and the world.
In the coming weeks, the Biden administration must decide whether it will continue the Trump trade wars or opt for a more balanced stance. The former would harm global recovery, especially in Asia – and vice versa.
In December, advanced economies’ Organization for Economic Co-operation and Development (OECD) forecast that global GDP will reach the pre-pandemic level by the end of 2021. In the OECD view, China will account for over a third of world economic expansion.
That contribution is critical, due to the devastating global economic contraction and lingering damage in lost lives and economic suffering.
This is an abbreviated version of the column published by China Daily on Jan. 25, 2021