China Economic Outlook. Second quarter 2021

Summary

Economic recovery is still solid in that the Q1 GDP registered a record-high year-on-year growth rate of 18.3%. The authorites are phasing out their policy stimulus. More policy attention has shifted to winding down the legacy debt caused by the anti-pandemic relief measures and tackling financial vulnerabilities.

Key points

• Key points:
• The supply and demand gap further narrowed, making the recovery more healthy and sustainable.
• US-China tensions remain after President Biden took office.
• A neutral but still accommodative monetary policy is the main stance in 2021. But there will be “no sharp turnaround” indicated by the 2021 “Two Sessions”. Fiscal policy normalization is also the main stance in 2021.
• Based on low statistical base effect, we forecast 2021 GDP growth to bounce back to 7.5% (Bloomberg consensus: 8%; IMF: 8.4%). The 2021 “Two Sessions” set a conservative and lower-than-expected growth target at 6%, indicating the authorities’ consideration of global economic uncertainties and the potential turbulence led by QE Tapering ahead.

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