Storm clouds gather on China’s horizon amid global turmoil

Dig deep into China’s stellar statistics and you will find an economy facing complex challenges in 2021.

At first glance, the past 12 months have been extraordinary for President Xi Jinping’s administration after it finally subdued the Covid-19 epidemic unleashed across the planet.

By June, the world’s second-largest economy was returning to normal. The factories started to hum amid an export push backed by a strong stimulus package. Consumers were gradually spending again.

But since then, the global situation has rapidly deteriorated with successive coronavirus waves wiping out economic activity in the United States and Europe, as well as parts of Southeast and East Asia. 

“In and out of lockdown ahead of everybody else, the Chinese economy powered ahead while much of the world was struggling to maintain balance,” Frederic Neumann, the co-head of Asian economic research at multinational bank HSBC, wrote in a report.

Stats snapshot

A snapshot of the stats released today by the National Bureau of Statistics illustrated the remarkable turnaround since the virus first surfaced in the Chinese city of Wuhan more than a year ago. It showed:

• Gross domestic product or GDP growth for 2020 expanded by 2.3% in 2020 compared to the same period last year.
• In the fourth quarter, GDP increased by 6.5% year-on-year after contracting 6.8% in the first three months of 2020.
• China is expected to be the “only major economy” in the world to avoid a contraction amid the Covid-19 pandemic.
• Industrial output jumped 7.3% in December from a year earlier and 2.8% annually.
• Retail sales growth slowed to 4.6% last month from 5% in November. 
• Annual sales shrank by 3.9% with the catering and restaurant sectors tumbling by 17%.
• Urban unemployment was 5.2% at the end of December but that failed to include millions of migrant workers.

“The main targets of economic and social development [in 2020] have been completed better than expected. China is [likely] to become the only major economy in the world to achieve positive economic growth throughout the year,” Ning Jizhe, the head of the National Bureau of Statistics, told a media briefing on Monday.

In the Year of the Plague, there has been only one winner and that is China with the rest of the global economy suffering a meltdown.

Last week, figures published by the General Administration of Customs showed that the country’s trade surplus in 2020 was an eye-watering US$535 billion with Beijing cashing in on the worldwide pandemic.

The export drive was fuelled by medical equipment and tech products as people across the planet were forced to work from home.

Yet there are dark clouds hovering just beyond the horizon. A rise in Covid-19 cases in the past two weeks has been reported across the northeast of the country. Corporate debt is also rising dramatically while the tech war between Washington and Beijing is entering its third year.

“Following new government restrictions amid Covid-19 outbreaks, reduced confidence and travel during the Chinese New Year holidays in February could hamper first-quarter growth. But, at least for now, we think the risk of major economic impact is low,” Louis Kuijs, an Asia Pacific analyst at Oxford Economics, said.

Death toll

To put that into perspective, China has recorded just 89,336 cases with the death toll remaining unchanged at 4,635. The globe numbers, in comparison, are 93,194,922 confirmed cases with fatalities surpassing two million, according to data from the World Health Organisation.

But with vaccines being rolled out across the world, a bigger concern could be the high-tech conflict launched by US President Donald Trump. Part of a broader pushback at Beijing’s predatory practices, it now encompasses human rights issues, diplomatic confrontation, and increased military tension in the South and East China Seas.

Even Joe Biden’s new White House administration is unlikely to roll back sanctions in the short term as he concentrates on domestic issues.

“We expect the newly elected US government will continue most of the current policies on China, at least for the first quarter. That means tariffs and technology measures on China will still be in place,” Iris Pang, the chief economist for Greater China at international investment bank ING, said. 

“The most positive development we can envisage is that tariffs could be reduced gradually over 2021 with no additional pressure on the technology side,” she added.

But you would not want to bet on it.