The latest data on China’s economic output to be released on Monday will likely present Xi Jinping’s administration with yet another opportunity to proclaim the country’s rapid recovery from the coronavirus pandemic.
Economists expect the National Bureau of Statistics gross domestic product figures for the last three months of 2020 to consolidate the rebound of the world’s second-largest economy after its historic slowdown last year.
Recent viral epidemics in Hebei, the province surrounding Beijing, has shown that China is not immune to a significant resurgence of the disease. But its economic recovery and its outlook for the coming year still appeal to the major economies of North America, Europe and the developing world.
Here are five things to watch out for.
The Chinese economy contracted from a historic 6.8% year-on-year level in the first three months of 2020, but avoided a formal recession – two consecutive quarters of declining output – by recording growth 3.2% and 4.9% respectively in the second and third trimester.
Larry Hu, chief China economist at Macquarie, estimated that the pace of the recovery accelerated further in the last quarter of 2020, to 6.1%. This would mean that the economy grew 2.3 percent over the entire year. Macquarie believes the pace will continue to increase this year and the economy will grow 8.5% in 2021.
The IMF has estimated 2020 growth at 1.9% and forecasts growth of 7.9% for this year.
But new travel constraints could hurt growth in Q1: Beijing, Shanghai and other major regions are urging residents not to travel as next month’s Chinese New Year holiday approaches, making it harder to relaunch of the government. relatively low consumption.
Risk-on or risk-off?
It was Liu He, Mr. Xi’s trust economic advisor, which convinced the president to declare financial risks a national security issue in 2017. Since becoming Deputy Prime Minister a year later, Mr. Liu has launched repeated campaigns to stamp out risky financial activities, targeting more recently the Chinese bond industry and fintech companies.
The restraint continued even in the depths of the coronavirus pandemic, with Beijing refraining from large-scale stimulus and economic subsidy programs adopted in Western countries, notably the United States and the United Kingdom. United.
“Liu He has brought financial sector risk to the fore since joining his current role,” said Eswar Prasad, a Chinese financial expert at Cornell University. “Even during this very difficult period for the economy in the second quarter [of 2020] they did not open the stimulus valves.
IMF urged Beijing to do more, saying it should adopt “fiscal, monetary and structural policies [aimed at] strengthen private demand ”.
Home loan borders
The biggest driver of the Chinese economy is the real estate sector. In a recent article, Guo Shuqing, head of China’s banking regulator, said that lenders’ exposure to the sector was the gray rhino risk– signifying clear and present dangers that are often overlooked.
On December 31, the central bank and the banking regulator imposed ceilings on bank lending to real estate developers and home buyers. As a result, one of the country’s largest banks, the China Construction Bank, will have to reduce its mortgages from 34.4% of total loans to 32.5%.
The limits are even stricter for smaller banks whose cap will be reduced to just 22.5 percent, reflecting the central bank’s concerns about the financial health of regional lenders.
But Chinese regulators are still cautious when cracking down on the real estate sector, wary of the effects this could have on the economy in general. Banks will have a four-year grace period to comply with the new rules that came into effect on January 1.
Budgetary tensions in the regions
China’s overall growth can often mask deep regional divisions. These will become apparent when the provinces confirm their own growth estimates for the fourth quarter in the coming weeks.
A series of bond defaults at the end of last year, highlighted how hard some regions are struggling as a result of the pandemic. Officials in northeastern Liaoning Province and central Henan have refused to help some of their largest and most prominent state-owned enterprises with coupon payments, triggering disruptions on the debt of other public enterprises in the two provinces.
Although the situation has since stabilized, more defaults are expected this year, putting even more pressure on already exhausted regional governments.
Increase in exports
As the coronavirus epidemic in China began to spread around the world early last year, a double economic crisis appeared to be looming for Xi’s government: demand shocks both within the country and abroad.
Instead, Beijing reaped an unexpected bonus. While domestic demand has not recovered as strongly as officials would like, China’s export machine has surged.
According to figures released Thursday, exports grew 18.1% year-over-year in December and 3.6% for the full year, generating an annual trade surplus of $ 535 billion – the most important from China for five years.
The inability of Western countries to contain the pandemic has fueled overseas demand for everything from Chinese-made personal protective equipment – up 13% year-over-year in December – to laptops , up 54.5%, and furniture, up 27.5%.