China the only major economy to avoid contraction after growing 2.3% in 2020
China’s economy recovered to pre-pandemic growth rates in the fourth quarter, propelling it to full-year expansion of 2.3 per cent and making it the only major one to avoid contraction.
Gross domestic product rose by 6.5 per cent in the final quarter from a year earlier, fuelled by stronger-than-expected industrial output, the statistics bureau said yesterday.
Economists surveyed by Bloomberg had predicted 6.2 per cent growth for the quarter and 2.1 per cent for the full year.
The recovery was aided early on by fiscal and monetary stimulus that boosted investment in infrastructure and property.
Once China had virus cases under control and factories resumed production, growth was spurred by strong consumer demand for Chinese exports, especially medical equipment and work-from-home devices.
“The quarter really seems to have shown the economy ended the year on a strong note. Manufacturing is doing well,” said Cui Li, head of macro research at CCB International Holdings in Hong Kong.
The softer-than-expected retail sales data in December may reflect the cooler weather and the resurgent virus in northern parts of China as some cities enforce new restrictions to control the outbreak.
The onshore yuan strengthened by as much as 0.06 per cent to 6.4779 versus the dollar after the release of growth figures, while the ChiNext Index of small caps gained 1.6 per cent.
The yield on the most actively traded contract of 10-year government bonds gained 2 basis points to 3.165 per cent.
Emerging from the pandemic larger than when it started is a boost after a turbulent year for the world’s second-largest economy, which began 2020 with a historic first-quarter slump when the coronavirus lockdowns brought most activity to a halt.
With global output expected to have contracted by about 4.2 per cent last year, China’s gains mean it increased its share of the world economy to 14.5 per cent, according to World Bank estimates, compared with 22 per cent for the US.
Based on projections from the International Monetary Fund, China will now overtake the US by 2028, two years earlier than previously predicted, according to Nomura Holdings.
Economists expect that China’s GDP will expand by 8.2 per cent this year, continuing to outpace global peers, even as other large economies begin to recover with vaccines being administered.
The ongoing recovery this year will depend on whether China can prevent a large-scale spread of virus infections, and on whether it can pass the baton of spending from local governments and large state companies to smaller businesses and consumers.
Household spending and investment by manufacturing companies lagged behind overall growth last year.
An increasingly tense trade relationship with the US could also weigh on the outlook.
In his final weeks in office, President Donald Trump has tightened restrictions on Chinese businesses to curb the nation’s dominance in high-tech industries, vexing financial markets.
It is still unclear how the incoming administration under Joe Biden will handle those issues.
Global demand for Chinese-made goods is expected to remain strong as the pandemic continues to keep large parts of the world’s population locked down.
Already the top exporter, the value of China’s goods shipments increased by 3.6 per cent last year, according to official data. Imports declined by 1.1 per cent, resulting in a $535 billion annual trade surplus, the highest since 2015.
The fiscal and monetary stimulus to support the economy through the pandemic has been accompanied by a surge in debt, a development that authorities are now seeking to address as the recovery takes hold.
At a December meeting to lay out economic goals for 2021, the ruling Communist Party signalled that stimulus would be gradually withdrawn but said it would avoid any “sharp turns” in policy.
Economists expect China’s gross domestic product to grow by 8.2 per cent this year