CHINA LEADS THE GLOBAL ECONOMY OUT OF ITS COVID SLUMP

23.04.2021 Despite being the source of the pandemic China has proved very effective at containing and ultimately beating Covid. Below we look at the outlook for the Chinese economy.

Whilst China was the source of pandemic it has proved very effective at managing the impact on its economy. The improved training of public health officials and implementation of a sophisticated disease surveillance system, following the 2003 SARS outbreak, gave it a head start over most states. Zealous testing, isolation and tracing lies at the heart of its success. A three week mass testing programme of 10 million Wuhan residents, following a cluster of cases, gives a sense of the scale and efficiency of the Chinese Covid response. Since the summer of 2020 the number of reported Covid cases has been negligible. Unlike the UK, China did not experience a second wave.

The successful containment of the Covid shock allowed the Chinse economy to begin its recovery in the second half of 2020. This was aided by an CNY 3.6 tn stimulus package. It was largely focused on increases in infrastructure spending in areas such as 5G and electric vehicle charging points. Other measures included lower interest rates, tax cuts and lower utility prices. Unlike all the other major advanced economies, that recorded an economic contraction in 2020, China registered an official growth rate of 2.3%.

In 2021 China’s economy is forecast to grow at around 8%. Manufacturing exports are currently growing at a very strong rate. This reflects China’s broad manufacturing base and its early recovery from Covid. Consumption and corporate investment are expected to recover later on in the year. Going forward, partly as a response to the Trump trade wars, China is looking to rely more on domestic consumption (as opposed to exports) while developing its own science and technology companies.

Anecdotal feed back from investment managers, operating in China, suggest that there are some very innovative and exciting science and technology start-ups. However, the problem for overseas investors is that corporate governance can sometimes be weak and the political risk, should a company fall foul of the Chinese Communist Party, is difficult to evaluate.

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This post was written by Robin