As KPMG China’s recently released 10 Macroeconomic Trends in 2021 outlook report highlights, the COVID-19 pandemic is undoubtedly a “black swan” that has significantly affected the global economy in 2020. Kevin Kang, Chief Economist of KPMG China, says: “As 2020 draws to a close, there are many ways to review China’s economic performance, but two ‘upside surprises’ in exports and foreign direct investment (FDI) have provided an interesting angle for looking at the country’s economic development in the past year.”
The first upside surprise is that China’s exports increased 2.4% year-on-year (YoY) in the first 10 months of 2020. By contrast, global trade decreased by 14% YoY in the first half of 2020, and the World Trade Organization expects it to decline by 9.2% for the full year. Based on these data, we estimate that China’s share of global exports increased by 2.7% from the end of 2019 and reached 16.7%. The second upside surprise relates to FDI. At the beginning of the year when the COVID-19 outbreak had just started, there was a widespread concern across sectors that foreign investment might leave China. Policies issued by some countries to support reshoring further accentuated this concern. However, in reality, FDI in China has remained resilient. In fact, FDI grew 6.4% between January and October compared to the same period last year and has even seen double-digit growth rates in recent months. By a clear contrast, global FDI decreased by 49% in the first half of 2020, and the United Nations Conference on Trade and Development (UNCTAD) forecasts global FDI to fall 30%-40% this year.
The reasons behind the two upside surprises are similar. Thanks to its effective measures to control the spread of the pandemic, China was the first in the world to restart its economy. However, many other countries are still trying to fully contain the pandemic, which has held their production capabilities back. At the same time, many advanced economies have introduced massive fiscal and monetary stimulus to stabilise economic growth. With consumption demand remained relatively strong but production lacking, the gap between their demand and supply has made those markets more reliant on China’s production, investment and export.
Against this background, we anticipate 10 macroeconomic trends in China next year:
Kang concludes: “The 14th Five-Year Plan for 2021-25 carries particular importance, as it will be the first five-year plan after China has attained its first centennial goal of ‘building a moderately prosperous society in all respects’ and started driving towards its second centennial goal. Against this background, we expect China’s economy to continue to recover and its GDP growth to reach 8.8% in 2021.”
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