In the background to any discussion about China’s 2021 prospects is the ongoing global pandemic. As Dr Le Xia noted at a webinar on 9 December, Covid-19 is still ravaging many places around the world, including the United States and Europe.
Xia, Chief Economist at Ping An Digital Economic Research Centre, was speaking about the outlook for the Chinese economy and the country’s 14th Five Year Plan, which will begin in 2021. On a more positive note on the global situation, the production capacity of vaccines now in development mean that the pandemic could be under control in many countries by the end of 2021.
“Global growth in 2020 was negative 5 to 6%, which was not as bad as had been expected,” Xia added.
This was partly due to strong exports, driven by demand for commodities and a faster recovery in manufacturing.
“On the supply side, you can depend on the machinery and you can protect workers. But on the demand side, in the services sectors, there is more person-to-person contact, so more risk.”
In fact, in China, exports recovered even better than expected, surging in the latter part of 2020.
“This is very interesting, and I think related to the huge demand for medical equipment outside of China,” Xia said. “Also, other manufacturing countries have had more interruptions to their supply chains, as workers have not been able to return to work.”
China has also been helped by the trend of East Asian countries dealing with the Covid situation relatively well. “In 2020, China will be the only country that will register a positive growth, among major economies. Next year, we expect China will lead this global recovery.”
On the policy side, central banks around the world have been supporting their economies through a range of easing measures. However, China’s expansion has been less marked than other economies, particularly the United States, where the Fed balance sheet is approaching US$ 10 trillion.
Moving on to the 14th Five Year Plan, Xia noted that the full details would not be available until March. But discussions at the Fifth Plenary Session in October suggest that key priorities will include increasing domestic demand, stabilizing the supply chain, and improving the quality of urbanization.
“Domestic demand has been the top of the agenda for some time,” Xia said. “But due to political factors – even without Covid – the authorities have realised they face more challenges externally, as the United States and other countries are encouraging companies to move their supply chains out.”
The key aim of the 13th Five Year Plan to achieve a moderately prosperous society has largely been achieved, but it seems that this is just a starting point. The 14th Plan cover similar areas, including more opening up, social development and government efficiency, but are more ambitious and with a longer timeframe.
It is not clear if the Chinese authorities will forecast a growth rate for the next five years, but Xia expects 5% to 6% growth to be achievable.
However, as the U.S. has closed its doors to Chinese investment, this puts added pressure on the need to support domestic industry and ensure their supply chain is still at the forefront of technology.
To further analyse what path the country might take, Ping An has looked beyond official announcements and data. In August, President Xi Jinping invited nine experts to discuss development issues. Although the details were not made public, research using Natural Language Processing of these experts’ work suggested that important topics will be finance, innovation, digital, employment, population and urbanization.
In the short term, the outlook for China is positive as the world recovers from the pandemic. The country’s rapid return to production after getting Covid under control highlighted the efficiency of its supply chain. However, in the longer term, there is the trend of anti-globalization.
“China is now the centre of manufacturing in the world, but in future they will face pressure from supply chain relocation,” Xia said, so the China Plus One strategy is likely to gain ground.
Promoting ESG (environmental, social and governance) and green growth are gathering steam. President Xi Jinping recently said that the nation was working towards being carbon neutral by 2060, which means there will likely be more policies in the near future. The issue of environmental protection is also garnering interest among the nation’s young people.
This will provide more opportunities for investors in the green industries, and for the financial sector in green finance products.