Chinese recovery in 2020 “needs” to gain visible momentum in 2021

08:48 by Hubert Fromlet, Kalmar

2020 turned out to become less of an “annus horribilis” than one could expect after the early eruption of covid-19 and the publication of the GDP development for the first quarter of last year (-6.8 % yoy). After this period of economic loss, a GDP rebound could be noted in Q2 and Q3 (+3.2 % and 4.9 %).

For years, I had my doubts about the quality of Chinese GDP statistics. Major qualitative progress still remains invisible – even if some improvement may or should have taken place more lately. One of the problems in such a context is certainly that even justified improved statistical quality can lack credibility when substantial shortcomings obviously have been existing for many years.

Positive GDP growth in 2020 good tool for political marketing

Now, we also know the GDP result for Q4 (+ 6.5 %, yoy and + 2.6  % compared to Q3). This is in line with the expectations of markets and most probably also what the leadership of the Communist Party wanted to see.

President Xi Jinping and his colleagues from the Standing Committee of the Communist Party – the most powerful political institution in China – should therefore be pleased with the annual GDP growth. Despite corona, the Chinese economy still managed officially a 2. 3 % GDP growth compared to 2019 as a whole – better than in all major economies. Chinese politicians and media will certainly do their marketing of this performance (described as a major success of the Chinese system).

Also for the past year, not many concrete structural changes or initiatives can be found in this annual GDP report. Structural policy orientation may have, however, been more complicated and less urgent during the acute pandemic. In 2021, there should be time for new efforts to speed up structural reforms and their transparency – despite the following special event a lot of attention will be put on:

In 2021, the 100th anniversary year of the Communist Party (CP) will be celebrated. Historical achievements will be summed up frequently by important political leaders. But how much will be talked more concretely – and not only generally – about the future?

China “must” achieve further acceleration of growth

The jubilee celebration year will move leaders of the CP in a triumphant mood. Major historical achievements will dominate the headlines like “The end of extreme poverty” or “The comprehensively well-off society”. However, the future has to be regarded as well – both in the shorter and the longer perspective.

Of course, the longer perspectives can only express vague visions but a re-emphasis will be put on supply-side policy and quality improvements. On the other hand, the short-term developments and perspectives can be shown more concretely. This includes the development of GDP in the course of 2021.

Here we have certainly a strong reason for efforts to do everything for considerable acceleration of GDP growth in 2021. This is a kind of “must”, perhaps rebounding the economy up to 7-8 % (without renewed major covid-19 complications).

Gradual positive consumption effects may also be derived from the planned demand-side policy reform, based on social reforms favoring the less wealthy part of the population. Furthermore, the announced more favorable treatment of corona-damaged small businesses should also be beneficial to GDP already in 2021 like the continuously relatively soft monetary policy by the PBoC.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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