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China’s economy exceeded its pre-pandemic growth rates in the fourth quarter, propelling it to a stronger-than-expected expansion of 2.3% for the full year and making it the only major one to avoid contraction in 2020.

Gross domestic product climbed 6.5% in the final quarter from a year earlier, fueled by industrial output, the statistics bureau said Monday. Economists surveyed by Bloomberg had predicted 6.2% growth for the quarter and 2.1% for the full year.

“China has more than returned to trend growth,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group. The strong rebound means authorities can “prioritize structural reforms rather than economic reflation” in 2021, he said.

The V-shaped recovery was based on successful control of COVID-19 cases and fiscal and monetary stimulus which boosted investment in real estate and infrastructure. Growth was further spurred by overseas consumer demand for medical equipment and work-from-home devices, with exports expanding 3.6% in 2020 compared to the previous year.

“The quarter really seems to have shown the economy ended the year on a strong note, manufacturing is doing well,” Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong said in an interview.

The Chinext Index of small caps gained 1.8% as of the midday break, while the yield on the most actively traded contract of 10-year government bonds rose 1 basis point to 3.16%, set for the highest in one week. The onshore yuan weakened 0.09% to 6.4874 per dollar as the greenback rebounded.

Emerging from the pandemic larger than when it started is a capstone to a dramatic year for the world’s second-largest economy, which began 2020 with a historic first-quarter slump when the coronavirus lockdowns brought most activity to a halt.

Even though China’s annual growth was the slowest in four decades, a global contraction in output means China increased its share of the world economy at the fastest pace on record, according to World Bank estimates. Based on projections from the International Monetary Fund, China will now overtake the U.S. by 2028, two years earlier than previously predicted, according to Nomura Holdings Inc.

Economists expect China’s GDP will expand 8.2% this year, continuing to outpace global peers even as they begin to recover due to a rollout of vaccines.

Growth this year will depend on whether China can prevent a large-scale resurgence of virus infections, and on whether it can pass the baton of spending from local governments and large state companies to consumers and private businesses. The government has recently imposed travel restrictions on several northern cities due to small-scale virus outbreaks, including locking down the capital of Hebei province, a city of 11 million people near Beijing.

“There’s a huge discrepancy between production and consumption,” said Bo Zhuang, chief China economist at TS Lombard. “I am not very optimistic about domestic demand, as wage growth is not back to pre-pandemic levels. Government spending is going to grow more weakly this year than last year as local officials have been told to tighten their belts.”

The investment and export-driven recovery in 2020 has exacerbated existing imbalances in the economy. Consumption spending per capita fell 4% in 2020 from a year earlier after adjusting for inflation, while investment in fixed assets such as real estate and infrastructure grew 2.9%, according to the statistics bureau. Industrial production surged, with China producing more than 1 billion tons of crude steel in 2020, an annual record.

“There is relatively large room” for China to raise the contribution rate of final consumption to economic growth, the head of the statistics bureau Ning Jizhe said after the data was released at a news conference in Beijing. For 2021, “it is necessary to improve the consumption ability of residents, improve consumption policy and environment, and cultivate more consumption growth drivers.”

China’s increasingly tense relationship with the U.S. could also weigh on the outlook. In his final weeks in office, President Donald Trump has tightened restrictions on Chinese businesses to curb the nation’s dominance in high-tech industries, roiling financial markets. It’s still unclear if the incoming administration under Joe Biden will maintain those measures.

The fiscal and monetary stimulus to support the economy through the pandemic has been accompanied by a surge in debt which authorities are now seeking to curb as the recovery takes hold. At a December meeting to lay out economic goals for 2021, the ruling Communist Party signaled that stimulus would be gradually withdrawn, although it would avoid any “sharp turns” in policy.

“Beijing is withdrawing stimulus, which will weaken investment in the coming months,” said Houze Song, a researcher on China’s economy at the Paulson Institute.

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