China’s Economic Strength to Continue Into 2021

China was the first country to suffer from the coronavirus, but it recovered in time to get its manufacturing capacity up and running as the virus spread across the world. Demand for personal protective equipment (PPE), computers and everything else has helped fuel China’s economic recovery in 2020 and position the country for continued strong growth in 2021. We’ll see how that plays out. is produced and what it means for the market.

Key points to remember

  • China has recovered from a dip at the start of the year to show modest growth throughout 2020.
  • This rapid recovery is leading major economies and owes much to China getting its manufacturing sector back on its feet as other countries went offline.
  • China’s economy is expected to grow even further in 2021 as coronavirus demand continues while other major economies continue to battle the virus.

An incredible comeback

While the world’s other major economies ended 2020 still struggling with the coronavirus and shutting down segments of the economy to prevent further spread, China’s economy grew by 2.3% in 2020. This comes at a time when the The World Bank predicts that most economies are destined for years of moderate growth after a significant decline in real terms in 2020.

China’s 2.3% overall growth is more impressive when seen in context. China gross domestic product (GDP) contracted 6.8% in the first quarter, rose 3.2% in the second quarter, rose again by 4.9% in the third quarter, then ended the year jumping 6 .5% in the fourth quarter. Although the virus knocked China’s economy off its rapid growth, resulting in a year in which its overall growth fell below its own standards, successive increases in 2020 have essentially returned China to its pre- pandemic faster than any other country.

The reasons for this quick snapback owe less to stimulus supporting many of the other major economies and more so that China has been able to keep its factories running. As the coronavirus spread across the world, manufacturing capacity and supply chains outside of China began to collapse. This cemented China’s role as the world’s manufacturing hub, as it was able to produce PPE and other end products thanks to the strength of domestic supply chains and capabilities. Simply put, when demand was highest for certain products, the only regular suppliers were based in China.

The outlook for 2021

Growth prospects for China out to 2021 are equally high. The International Monetary Fund (IMF) predicts that China’s growth in 2021 will be a staggering 8.1%, well ahead of the United States at 5.1%, and just behind India with projected growth of 11.5. %. In addition to incredible growth, China has also overtaken the United States in terms of attraction foreign direct investment (IDE).

While some businesses have reacted to the disruptions of the coronavirus by relocation operations closer to their largest customer base, others have seen how China’s integrated manufacturing centers with all elements of the supply chain located in the region have been able to continue production throughout the pandemic. This has led some companies to accelerate their investments in China, redefining their operations as their main production sites. The two approaches pull in different directions, with some companies relocating and others relocation, but China has seen more investment coming in than going out. This trend will continue through 2021 and will likely survive the coronavirus pandemic that precipitated it.

Potential road bumps ahead

It wouldn’t be an article about China without some apparent contradictions. There are potential problems brewing for the Chinese economy in the near term despite the strong performance. In addition to companies considering relocation, more than a few nations are pushing for a more aggressive policy stance against China. Part of that determination has to do with China’s perceived lack of transparency as the coronavirus first spread. Whatever the source, there have been signs of backsliding from a number of developed economies, building on trade wrangling between China and the United States under the Trump administration.

In addition to potential international trade and policy headaches, China has also seen slowing productivity growth as its population simultaneously begins to gray.Rather than moving forward with long-promised reforms and encouraging private innovation, China seems intent on retaining power public companies (state enterprises). Jack Ma’s Recent Troubles are just one example. Deference from state-owned enterprises and resistance to reform are likely to continue to weigh on productivity even as China grows.

The essential

China has essentially emerged from the coronavirus pandemic as strong as it entered it and on a timeline that seems unfathomable for other major economies. Working from this position of economic strength, China is poised to continue growing while the rest of the world still struggles to get the coronavirus under control.

There are a few potential headwinds for China, including upset international partners looking to tougher policy, slowing productivity growth, an aging population and a lack of real reform. That said, however, China has once again shown that no matter what problems its economy faces, markets should be wary of betting against its continued growth.

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