China GDP: IMF forecast to grow by 7.9% in 2021

According to the National Bureau of Statistics report, China’s GDP broke through the 100 trillion yuan mark for the first time, a 2.3% increase against the trend. This is a clear indication of China’s resilience and potential weathering a dual challenge of the pandemic and Sino-US relations in 2020.

China’s contemporary economic development is a miracle in human economic history, and its success is very difficult to replicate. With such remarkable economic achievement in spite of the challenges, China’s economy is expected to become the only major economy in the world to achieve high positive growth. Reviewing its projections, the International Monetary Fund (IMF) forecasts 7.9% GDP growth for the Chinese economy short of an earlier projection of 8.2% in October 2020. The recent weeks has seen increased tension between the United States and China leading to technological decoupling, restrictions on dollar fundraising for Chinese companies via Hong Kong among other domestic financial risks.

Hong Kong services as a foreign financing hub for the mainland, accounting for about 1/3rd of China’s total equity financing, 2/3rd of offshore bond issuance, and 60% of inward and outward direct investment. Restricting the US dollar fundraising access to Chinese firms in Hong Kong also comes from the US threats of new sanctions on Hong Kong and China for the crackdown on opposition politicians which saw more than 50 arrests in a dawn raid in which 1,000 police officers swept the city.

China owes its enviable economic recovery to the robust management and fight against the covid19 by the ruling government. However, Chinese growth is still unbalanced, with the recovery relying heavily on government support while private consumption lags behind. Income dropped weakening aggregate consumption, especially for the more vulnerable households, while the better-to-do increased precautionary savings. Chinese leaders as part of the “14th Five-Year Plan”, pledged to maintain “necessary” policy support for the economy, avoiding a sudden policy shift, pointing to smaller economic stimulus in 2021.

Classical loft and modern city skyline in China Chongqing

The recent spikes in covid19 cases in parts of China especially Beijing puts concerns on China’s strive to economic rebound as the country prepares for the Chinese New Year in a few weeks. This sends waves of caution as the recent waves could impact the pent-up consumer demand for the Lunar New Year period.

Can China lead the world to an economic rebound post covid19, perhaps 2021 will hold the answer to that?

Source: multiple sources