China’s effective containment measures for second-wave COVID-19 infections, coupled with a more accommodative fiscal policy stance, have put the country on a relatively strong footing toward recovery in 2021. However, the economy’s investment-driven expansion remains uneven, as its demand-side recovery lags behind its supply-side revival. Externally, the global environment looks increasingly uncertain due to persistent resurgences of COVID-19 in major Western economies and heightened US-China tensions. To mitigate risks associated with elevated external volatility, the Chinese leadership has issued policy guidelines to develop indigenous technology, strengthen the resilience of China’s supply chains and reinforce the role of domestic demand to drive growth.
Consumer demand recovery is finally accelerating on the back of a stable domestic COVID-19 situation. Businesses expecting a swift consumer demand uptick will likely be disappointed by the gradual pace of recovery as Chinese consumers remain cautious, but we still see an upward trend that is worth watching. Investment will also remain an important driver for China’s economic expansion next year as the government keeps fiscal and monetary policies accommodative to shore up growth. The Chinese yuan is likely to remain relatively stable against the US dollar for the remainder of 2020 before mildly depreciating over the course of 2021.
FrontierView’s market experts are constantly monitoring the Chinese economy and key developments that could impact your business in the coming months. Below are FrontierView’s three key assumptions for China’s economy in 2021:
- Ongoing social distancing measures and other restrictions on local activity mean that secondary outbreaks are limited. But risks until widespread vaccination begins in the first half of 2021 prevent a full recovery in normal global activity through the end of next year
- The COVID-19 situation remains stable nationally through the remainder of 2020 and 2021, as Chinese authorities effectively contain limited local outbreaks
- Gradual recovery across global markets begins in the second half of 2020, but no return to pre-COVID levels of aggregate trade, growth, and commodity demand until 2022. Prices for cyclical commodities remain weak in 2021, though gradually recover from the low prices in 2020
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