The economy of China in 4Q20 grew by 6.5 percent YoY, amounting to full-year growth that exceeded the projection, at 2.3 percent YoY. The figures reflect China's success in efficiently controlling the COVID-19 pandemic and implementing both monetary and fiscal stimuli in a timely and effective manner. As evidenced, retail sales grew steadily in the range of 4.3-5.0 percent YoY in the final quarter of 2020. Moreover, the recovery of the manufacturing industry now encompassed a wider range of categories, particularly the positive outlook among small and medium enterprises (SMEs) that have been performing better than large enterprises. Such a trend was indicated by the expansion of the Caixin Purchasing Managers' Index (PMI Caixin), which outpaced that of the China Federation of Logistics and Purchasing Manufacturing Purchasing Managers' Index (PMI CFLP) in 4Q20. At the same time, the worldwide COVID-19 situation appeared to be improving in the period from October to September 2020 (before re-implementation of lockdowns in December 2020). Consequently, China's exports in 4Q20 benefited immensely from the easing pandemic situation, with growth of 21.1 percent and 18.1 percent in November and December, respectively.
KResearch projects that China's economy in 2021 will resume its growth in the range of 8.0-8.5 percent YoY, supported by the recently revived and continuous consumption in the country's private sector. The improvement is attributable to the rising purchasing power of the Chinese middle-class, which currently numbers around 400 million people, and increasing per capita income (PCI) as a result of higher skills and efficiency in the workforce – along with other measures issued by the government to stimulate consumption. In addition, investments in fixed assets within industries related to new technologies by the public and private sectors will serve as the main driver of China's economy, especially for investments that correspond to China's long-term economic development plan; all of which is occurring amid a slowdown in Chinese businesses' investment in traditional industries and uncertainty surrounding the export market.
Economic growth in 2021 will be markedly different, with a shift in emphasis from short-term impetus to mitigate the COVID-19 crisis to that of long-term qualitative growth which involves investment in the population's quality of life, investment in the development of new basic infrastructure and application of new technologies for long-term, sustainable development as a way of strengthening a circular economy. Such decisions will be executed alongside promotion of external sector in line with China's “Dual Circulation" model as outlined in China's 14th Five-Year Plan for National Economic and Social Development, which will be in place from 2021 to 2025. Risks that must be monitored throughout 2021 include the rising private sector debt as a result of stimulus packages in the preceding year, and geopolitical risk that may stem from uncertainty in US-China relationship.