Workers check product quality at the Hebei Xinglong Equipment Co Ltd in Fengrun District, Tangshan of North China's Hebei province, on Dec 17, 2020. (PHOTO / XINHUA)
China’s better than expected economic growth in 2020 amid the pandemic, accompanied by multiple structural improvements in the economy, indicated the internal circulation – the domestic cycle of production, distribution, and consumption – has recovered to almost prepandemic levels.
China’s economy expanded by 2.3 percent in 2020, driven by the 6.5 percent growth in the fourth quarter, data from the National Bureau of Statistics showed on Jan 18.
Looking ahead, the accelerated recovery of household consumption and manufacturing investments is expected to further strengthen the Chinese economy’s endogenous growth momentum.Together with the consistent economic policies, it is likely to usher in economic recovery this spring. Therefore, it is expected to lay the foundation for stable economic growth throughout the year.
From a financial perspective, the logic that underpins investment is expected to center on fundamentals this year, instead of liquidity. For renminbi assets, risky assets are expected to outperform safe haven assets.
Cyclical assets are forecast to perform well in the first half of the year, while assets connected to business growth are probably worthy of long-term deployment in the second half.
According to NBS data, yearon-year economic growth in the fourth quarter of 2020 was 1.6 percentage points higher than that in the third quarter. This had sparked predictions late last year that the Chinese economy will likely register the fastest expansion in 2020 among major economies.
In general, at the end of 2020, China’s economy had basically returned to the prepandemic level, with fundamental resilience further reinforced.
The value added of industrial enterprises above designated size in December 2020 increased 7.3 percent yearonyear, rising to the peak since March 2019, and marking the recovery of supply chain to maintain the supply side export advantage against the background of the COVID-¬19 pandemic.
Retail sales of consumer goods in the fourth quarter increased 4.6 percent yearonyear, with an increase of 3.7 percentage points from that in the third quarter, indicating faster demand side recovery.
Thanks to the government’s focus on ensuring stability on the six fronts and security in the six areas, the GDP growth has strengthened its role in supporting employment and improving people’s livelihood.
The surveyed urban unemployment rate was 5.2 percent in December, unchanged from the same period in 2019, and 11.86 million new urban jobs were created in 2020, exceeding the average annual growth target under the normal conditions for the 201719 period. This indicated that the epidemic’s impact on social development and people’s livelihood is quickly fading.
Strong growth has been forecast for this spring. It is predicted that household consumption and manufacturing investment will speed up this year, strengthening the recovery momentum of the internal circulation and enabling a strong economic rebound.
First, employment data for December 2020 were almost the same as that of December 2019 in terms of total volume and structure, which meant the residents’ precautionary saving motives would get weaker, while the consumption confidence would continue to keep the upward trend that began in August 2020.
In the fourth quarter of last year, sales of consumer goods for consumption upgrade showed accelerated growth, in tandem with the narrowing of the income gap between urban and rural residents, indicating new consumption growth points following the percolation of consumption upgrade to lower tier cities and rural areas.
Second, the tightening production capacity, together with the expectation of a gradual recovery of the global economy this year, is expected to give rise to a gradual rebound in China’s manufacturing investment.
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The national industrial capacity utilization rate in the fourth quarter was 78 percent, which was the highest level in recent years and a jump from the average rate of the 201719 period.
As of December 2020, the PMI new order index remained high, while the finished product inventory index gradually picked up from the lowest level in recent years, making the trend of active replenishing of inventory increasingly obvious.
Given the factors discussed above, and taking into account the resilience of China’s exports supported by its supplyside advantages due to the COVID19 pandemic, as well as the consistent and stable economic policies, China’s economic growth is estimated to be strong in the first and second quarters of this year. It will then return to the moderate level quarter by quarter, till the annual growth rate settles around 9.2 percent.
Also, although the uncertainties due to the COVID19 pandemic and the new round of stimulus policies in the United States would give rise to fluctuations in the US dollar index, the renminbi exchange rate is expected to remain generally stable with twoway fluctuations – and the exchange rate against US dollar is expected to reach 6.40 sometime this year.
Since the Chinese economy was the first to recover from the pandemic impact, investment logic on RMB assets should be different from the rest this year.
As the Chinese economy and economic policies are on track to normalization, RMB asset investment should focus on fundamentals.
To reiterate, China’s economic growth rate will roar high during the first few months of this year, before returning to normal or medium level gradually.
This year, incidentally, is the first one of the 14th Five-Year Plan period (202125). The new round of reforms is expected to deliver results in the second half of the year, together with speeding up of innovations in the digital economy.
Therefore, during the first half, due to the fast economic growth, cyclical assets will likely produce a better performance, while in the second half assets connected to business growth will have better potentials.
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Among RMB assets, risk assets will likely outperform safehaven assets this year, and Chinese market’s attractiveness to international capital will be reinforced.
Cheng Shi is chief economist at ICBC International Holdings Ltd. Qian Zhijun is a senior economist at ICBC International Holdings Ltd.
The views don’t necessarily reflect those of China Daily.