China’s economic recovery is likely to become more balanced over the coming quarters, as a push to accelerate inoculations helps lift consumer sentiment and aid consumption recovery and domestic demand in China. While overall fiscal and monetary policy will remain sufficiently accommodative, there will be significant divergence in investment growth relative to 2020 due to shifts in government priorities.

Our latest China Market Review examines the current developments and trends in the market to help firms prepare their 2022 strategic plans. We recommend that firms prepare for a broad-based demand recovery but remain vigilant, as geopolitical tensions between China and the West will continue to create uncertainties in 2021. Keep reading for the three key trends in China that we are watching for our clients.

China’s service sector recovery will likely be protracted due to lingering consumer caution

China’s domestic catering, tourism, and hospitality sector will continue to recover, albeit at a protracted pace. Firms should plan for gradual demand improvement in offline outlets while expecting online channels to remain resilient.

Total local government revenue will improve substantially in 2021

An expected upside for tax revenue in 2021 will lead to improvement in local government debt-service capacity, allowing local authorities to increase purchases. B2G MNCs should expect potentially higher volumes and lower pricing pressure from government clients.

Manufacturing investment is likely to hold up, while real estate investment is likely to slow

The government is poised to channel investments toward manufacturing and away from real estate, with the goal of increasing the manufacturing sector’s contribution in proportion to GDP and prevent a continued debt buildup in the already-overleveraged property sector.

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