China enters 2021 economically stronger relative to major economies than anytime since 2009. This apparent strength creates extremely high expectations for China to deliver on its forecast economic recovery, on its rollout of vaccines in China and beyond, and on stabilizing its geopolitical relationships. In a year when avoiding major risks and sources of instability remain paramount, China’s leaders will find it harder to keep the economy on track than anticipated.
Economic growth expectations for 2021 of 8 percent-plus (in real renminbi terms) are pricing in perfection. Achieving it could pose a challenge. Most critical is the need to accelerate still sluggish consumer spending. The recent pivot in government policy to demand stimulation reflects growing concern in Beijing that consumers are not stepping up their spending as needed. China’s export strength in 2020 has resulted from global demand for personal protective equipment (PPE), a global shift to online purchasing, and Chinese manufacturers stepping up to fill gaps left by manufacturers locked down in other markets.
In 2021, with the roll-out of vaccines, manufacturers ex-China will fully recover. Additionally, the secular trend to move manufacturing (especially destined for the US) out of China will restart, and China based manufacturers will feel the full impact of the renminbi’s appreciation. Domestically, infrastructure spending has not yielded the desired results. The continued flirtation with bankruptcy of several of China’s leading property developers highlights fragility in this sector. Expect aggressive action to lower tax and other burdens on individuals. Concerns about growth will also push Beijing towards opening up further to foreign capital and business participation within China. Negative lists will shorten further and more licenses will be issued from basic materials to financial services.