One year on from COVID, China’s economy is beating the world

0

China’s economic rise is accelerating barely a year after its first coronavirus lockdowns, as its success in controlling Covid-19 allows it to increase its share of global trade and investment.

The world’s second-largest economy is expected to report a 2.1% increase in gross domestic product in 2020 on Monday, the only large economy to have avoided a contraction, according to a Bloomberg survey of economists.

This should ensure that its share of the world economy has grown at the fastest rate of this century. Global production fell 4.2 percent last year, according to the World Bank, bringing China’s share to 14.5 percent at 2010 dollar prices, two years ahead of schedule.

Source: Bloomberg

And it’s not just an incident that will reverse once other major economies start to recover as vaccines are rolled out. Economists expect China’s GDP to grow 8.2% this year, continuing to overtake its global peers, including the United States.

China is now on track to overtake the United States as the largest economy in 2028, said Homi Kharas, deputy director of the global economics and development program at the Brookings Institution, two years faster than he ever did. ‘had previously estimated.

After resisting President Donald Trump’s trade war, China is deepening its economic ties with Asia and Europe and turning to domestic consumption to fuel its next phase of growth. President Xi Jinping said this week that “the weather and the situation” were on the country’s side in another year marked by domestic unrest in the United States.

If the success of its local virus control continues, the pandemic could help China “solidify its position in the global economy,” said Ka Zeng, director of Asian studies at the University of Arkansas. US and European businesses are likely to focus more on China due to the “potential for the country to be the only major source of growth in the post-pandemic world.”

China’s record jump in global GDP share was just one of many milestones in its economy last year:

  • The economy has converged with the United States at the fastest pace on record. China’s GDP was 71.4% of US levels in 2020, according to the International Monetary Fund, up 4.2% from the previous year
  • The share of world trade has increased as exports linked to the pandemic have increased. Already the world’s largest exporter, shipments from China increased 3.6% in 2020, according to official data. Total world trade has probably contracted by 5.6%, according to estimates by UNCTAD, the United Nations trade and development body.
  • China has probably regained the title of the world’s top destination for foreign investment, which it lost to the United States in 2015. Foreign investment in China reached more than $ 129.5 billion until November 2020 , slightly above the previous year. Globally, FDI inflows are expected to fall 30-40% year-on-year in 2020, according to UNCTAD
  • The Fortune Global 500 list of the world’s largest companies by revenue for the first time included more companies based in China, including Hong Kong, than in the United States: 124 vs. 121
  • Full-year film box office receipts overtake the United States for the first time
  • Sovereign debt was added to the benchmark FTSE Russell index, completing the country’s inclusion in the three major global bond indices. Foreign investors bought 1.1 trillion yuan ($ 170 billion) of Chinese bonds in 2020

China’s increased role in a post-pandemic world increases the urgency of the debate among the rest of the world on how to engage with Beijing. While the Trump administration has imposed tariffs and restricted access to key technologies, other countries have sought to strengthen their trade and investment ties.

Fifteen Asian countries, including China, signed the regional comprehensive economic partnership pact in November, pledging to reduce trade barriers in the region. In December, the European Union concluded a comprehensive investment agreement with China.

“Countries will have to face a bipolar world rather than a unipolar world,” said Bo Zhuang, chief economist for China at TS Lombard.

What Bloomberg Economics says …

“Not only China’s growth, but also the pattern of its growth is important to the world economy. China continues to strive to shift to greater reliance on consumption for growth. For the rest of the world, China will increasingly become a consumer in addition to the role of producer it has long played.

– Chang Shu, Chief Economist for Asia

Chinese leaders generally downplay economic milestones, such as its economic output surpassing that of Japan in 2010, for fear of scaring off those who are already wary of its rise. Yet Beijing this year announced its goal of doubling GDP from 2020 levels by 2035, a goal that involves a march to number one.

Still, there is no guarantee that this will happen. China has proven the pessimists wrong in 2020, but faces enormous challenges ranging from worsening relations with the United States potentially limiting its access to technology, over reliance on investments funded by the debt and rapid aging of the population.

China’s role as a factory for the world was strengthened last year as it distributed face masks, medical equipment and work-from-home equipment. As political leaders such as Frenchman Emmanuel Macron have pledged to manufacture more at home after the pandemic – echoing US rhetoric about ‘decoupling’ from China – any changes to diversify production will be gradual due to costs high involved.

Source: Bloomberg

Multinational companies have another reason to stay or even increase their investments in China: the rapidly growing consumer market, which is already eclipsing the United States and Western Europe in some sectors.

China now represents a quarter of the global middle class, defined as the population spending $ 11 to $ 110 per person per day in 2011 purchasing power parity terms, a milestone that “would not have been reached. before two more years if Covid-19 hadn’t been It didn’t happen, ”said Kharas of the Brookings Institution.

General Motors Co and Volkswagen AG continued to sell more cars in China than in their domestic markets last year. Starbucks Corp. plans to open around 600 new stores this year, while Nike Inc. reported sales in China of $ 2 billion for the first time in the quarter ended in November.

“We have seen wave after wave of the pandemic hitting different markets,” Nike CFO Matthew Friend said on a call to investors in December. “And really, the only market where we’ve seen some kind of continued trajectory in terms of handling the virus has been China. “

Share.

Comments are closed.