The Chinese economy picked up speed in the fourth quarter, ending 2020 in excellent shape after the COVID-19 shock

BEIJING (Reuters) – China’s economy picked up speed in the fourth quarter, with growth that beat expectations as it ended a 2020 in extraordinarily good condition with the coronavirus and remained poised to expand further this year even as the pandemic global has raged relentlessly.

The world’s second largest economy surprised many with the speed of its recovery from the shock of the coronavirus, especially as politicians have also had to address tense US-China relations on trade and other fronts.

Tight restrictions of the Beijing virus have allowed it to largely contain the COVID-19 outbreak much faster than most countries, while government-led political stimuli and local producers stepping up production to supply goods to many countries paralyzed by the pandemic have also helped to build momentum.

Gross domestic product (GDP) grew 6.5% yoy in the fourth quarter, data from the National Bureau of Statistics showed Monday, faster than the 6.1% expected by economists in a Reuters poll, and followed solid third-quarter growth of 4.9%.

GDP grew 2.3% in 2020, the data showed, making China the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic. And China is expected to continue to be in power relative to its peers this year, with economists forecasting GDP expansion at the fastest pace in a decade at 8.4%, according to a Reuters poll.

“The higher than expected GDP number indicates that growth has entered an expansionary zone, although some sectors remain recovering,” Xing Zhaopeng, an ANZ economist in Shanghai.

“The exit from politics will put counter-cyclical pressures on growth in 2021”.

Backed by tight virus containment measures and political stimulus, the economy has experienced a steady recovery from a sharp decline of 6.8% in the first three months of 2020, when a COVID-19 outbreak in the central city of Wuhan turned into a full-blown outbreak.

Asia’s economic power has been fueled by a surprisingly resilient export sector, but China’s consumption, a key driver of growth, has lagged behind expectations amid fears of a resurgence of COVID-19 cases.

Data from last week showed that Chinese exports rose more-than-expected in December as coronavirus outages around the world fueled demand for Chinese goods even as a stronger yuan made exports more expensive for buyers. foreigners.

However, underlining the massive impact of COVID-19 around the world, China’s GDP growth in 2020 marked its weakest pace since 1976, the last year of the decade-long Cultural Revolution that destroyed the economy.

Overall, the brighter economic data series has reduced the need for more monetary easing this year, leading the central bank to scale back some political support, sources told Reuters, but there would be no sudden change in policy. political direction, according to key policy makers.

On a quarter-over-quarter basis, GDP increased 2.6% in October-December, the bureau said, compared to expectations of a 3.2% increase and a revised 3.0 increase in the previous quarter. .

Highlighting the weakness in consumption, retail sales fell by 3.9% last year, marking the first contraction since 1968, a record from NBS showed. Retail sales growth in December missed analysts’ forecasts and fell to 4.6% from 5.0% in November, due to the slowdown in sales of clothing, cosmetics, telecommunications and automobiles.

However, China’s vast manufacturing sector continued to gain momentum, with industrial production rising at a faster-than-expected rate of 7.3% last month. from a year ago, peaking since March 2019.

LINGERING RISKS IN 2021

Ning Jizhe, head of China’s statistical office, said at a briefing that there would be many favorable conditions to support China’s economic recovery in 2021.

This year marks the beginning of China’s 14th Five-Year Plan, which policymakers see as vital to steer the economy beyond the so-called “middle income trap”.

China still faces many challenges, not least the tensions between Beijing and Washington and how they would develop under the new US administration led by President-elect Joe Biden. Furthermore, rising labor costs, an aging population and a recent rise in credit defaults add to the risks for an economy that is still trying to reduce a mountain of debt.

“We should be alert to the following problems in 2021: first the imbalance of the economic recovery. Compared to investment and exports, consumption is weak overall and has yet to return to normal levels, ”said Wang Jun, chief economist of Beijing-based Zhongyuan Bank.

“The second is the problem of excessive and rapid credit crunch”.

The central bank is poised to keep its benchmark lending rate unchanged over the next few months, leading a steady slowdown in credit expansion in 2021, policy sources said.

The Chinese Academy of Social Sciences, a government think tank, sees the leverage ratio increase by around 30 percentage points in 2020, topping 270%.

While this year’s projected growth rate of over 8% would be the strongest in a decade, led by a double-digit expansion projected in the first quarter, it is made less impressive by the low base set in 2020 hit by a pandemic.

Some analysts have also warned that a recent rebound in COVID-19 cases in the country’s northeast could impact activity and consumption ahead of next month’s long Lunar New Year holidays.

“Control of the flow of people has begun, so the risk of a widespread Covid epidemic should be low,” said Iris Pang, ING’s Chinese chief economist.

“But the risk of a technological war between China and some economies remains if the United States does not remove some measures.”

Additional reporting by Stella Qiu; Editing by Shri Navaratnam