China Economic Outlook. First quarter 2021

Summary

Vaccination, accommodative monetary policy with "no sharp turnaround", possible alleviation of China-US tension under Biden’s presidency and deflationary environment give Chinese authorities a chance for a short respite in 2021.

Key points

• Key points:
• Q4 2020 GDP growth achieved 6.5%, higher than the pre-pandemic growth rate. However, to regain all the lost ground in every perspective of economy, quite a bit of perseverance is still needed.
• The uneven recovery feature that the supply side lags behind the demand side has been mitigating. However, although industrial production already goes back to pre-Covid growth, demand side retail sales and FAI, albeit improving significantly, still far from that.
• Amid escalating US-China tensions in almost every fronts, EU-China Comprehensive Agreement on Investment which was signed at end-2020 became the game-changer of international relations.
• Monetary policy, normalization is the main stance in 2021. But there will be "no harsh turnaround" indicated by the December Annual Central Economic Conference. That means, a neutral but still accommodative monetary policy, together with a tightening financial regulation will be the main stance in 2021.
• Based on low statistical base effect, we forecast 2021 GDP growth to bounce back to 7.5%. But that is the easy part, the base effect will flatter the growth outturn of 2021 everywhere in the world.

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