Strong recovery ready to bolster global economy

December 17, 2020

Effective measures to control COVID-19 and policy support set stage for rebound

China is expected to lead the global economic recovery next year, with major economic organizations and economists projecting a robust performance by China's economy and foreign businesses remaining committed to the Chinese market.

With the country having adopted effective measures to put the COVID-19 pandemic under control and its economy continuing to bounce back in recent months, the organizations and economists have expressed confidence in a stronger economic performance from China, which will inject key momentum into the global recovery and growth next year.

On Friday, a meeting of the Political Bureau of the Communist Party of China Central Committee, the Party's core leadership, underlined the need to maintain economic growth within a reasonable range, adhere to the strategy of expanding domestic demand and pursue a higher level of opening-up.

"China, which started recovering earlier, is projected to grow strongly, accounting for over one-third of world economic growth in 2021," said Laurence Boone, chief economist at the Organization for Economic Cooperation and Development, at the release of the organization's Economic Outlook earlier this month.

"A solid recovery is expected to continue in China, with GDP growth projected to be around 8 percent in 2021 and 5 percent in 2022," the organization said in the report.

It added that China's strong recovery will help global GDP return to pre-crisis levels by the end of next year. "The recovery in industrial production in China has also boosted demand for many raw materials in commodity exporting economies, particularly metals."

It said that China's policymakers are now withdrawing its monetary stimulus, which was needed during the outbreak, as the economic recovery has gained momentum in recent months.

The National Bureau of Statistics said on Tuesday that China's growth in industrial value added increased by 7 percent year-on-year in November, from 6.9 percent in October. Retail sales, a key gauge of consumption, was up by 5 percent year-on-year, the fastest level of the year, the bureau said.

The inflow of foreign investment to China grew by 6.3 percent year-on-year to 899.38 billion yuan ($137.7 billion) between January and November, according to the Ministry of Commerce.

The OECD projected that China's fiscal policy will remain supportive, with a number of tax cuts and extensions of social benefits promoting consumption amid weak consumer confidence.

However, the organization said that more ambitious structural reforms in social protection, and a more equitable provision of public services, are needed for consumption to rebound.

Lu Ting, chief China economist at Japanese brokerage Nomura Securities, said a rebound of global demand will enable China's exports to maintain a high rate of growth, underpinning the growth of the economy.

"There is a great chance that vaccines will be used on a large scale globally, which will greatly ease the impact of the pandemic. During this process, we believe a global economic recovery is on the horizon," he said.

Well-balanced recovery

Fitch Ratings, a global credit rating agency, forecast in a research document early this month that China's economic recovery will be increasingly well-balanced in 2021, after successful containment of the coronavirus, and with many activity indicators now at pre-pandemic levels.

Fitch also predicted improved growth outlooks in the Hong Kong and Macao special administrative regions and Taiwan, saying that economic activity in these markets will be supported by stronger growth on the Chinese mainland, which will provide a boost to exports and, potentially, a partial recovery in tourism through restricted travel bubbles.

Louis Kuijs, head of Asia Economics at Oxford Economics, a British think tank, said that he expects spending by China's private sector to step up in 2021, while policy support retreats as the country's economic recovery matures.

"We expect China's growth to rotate in 2021, with momentum picking up in household consumption and corporate investment, while investment in infrastructure and, to a lesser extent, real estate, slows down," he said.

Meanwhile, foreign businesses in the Chinese market have remained resilient, optimistic and committed to that market despite disruptions from the pandemic in 2020.

A survey conducted by the American Chamber of Commerce in Shanghai in November, which polled 124 United States companies, said about 82 percent of respondents had no plans to move their manufacturing facilities offshore over the next three years.

A survey of British businesses in China, conducted by the British Chamber of Commerce in China, found that 82 percent of the companies cited market potential as a reason to increase investment in China in 2021.

China was the No 1 priority for 39 percent of the chamber's surveyed businesses, and a second or third priority for a further 18 percent, the chamber said in the report, which was released this month.

"Given its size and importance to the global economy, China remains a top investment destination for British businesses already in-market," it said.