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The recovery remains firmly in place, with October indicators signaling still-robust economic dynamics. On 29 October, China’s top leadershi...

China Economics Outlook Improves


The recovery remains firmly in place, with October indicators signaling still-robust economic dynamics. On 29 October, China’s top leadership finalized the blueprint of the 14th Five-Year Plan (2021—2025) and unveiled its “Vision 2035” program, which intends to catapult China to “moderately developed economy” status in 15 years. The final document will be approved at the March 2021 National People’s Congress. The agenda includes boosting total factor productivity, rebalancing economic development and reducing the economy’s dependence on external markets and technology. Although it is ambitious, China’s solid track record of meeting economic and social targets makes this initiative plausible. Regarding the U.S. elections, while a Biden presidency should lead to some reduction in trade tensions, the removal of existing trade tariffs is still uncertain. 

• Economic growth is expected to accelerate sharply in 2021. Next year, private consumption should be the main growth driver as it recovers from the coronavirus-induced slump and the impact of social distancing measures. Despite the new Democrat-led administration in the U.S., uncertainty over the China-U.S. relationship will likely persist and affect investment decisions. FocusEconomics panelists expect GDP to expand 7.9% in 2021, which is up 0.2 percentage points from last month’s estimate. In 2022, the panel foresees GDP expanding 5.2%. 

• Inflation tumbled to 0.5% in October from 1.7% in September, marking an over 10-year low. That said, the subdued reading mostly reflected a high base effect from last year due to the African swine fever outbreak, as well as declining fuel prices. Inflation is expected to pick up next year due to solid domestic growth. FocusEconomics panelists forecast that inflation will average 2.0% in 2021, which is down 0.1 percentage points from last month’s estimate. In 2022, they see inflation increasing to 2.2%. 

• The People’s Bank of China (PBOC) has refrained from adding monetary stimulus in recent months as the economy appears to be on a path to recovery. The PBOC uses a complex system to implement monetary policy, including key benchmark rates and reserve requirement ratios. Panelists project the one-year deposit rate to end 2021 and 2022 at 1.50%. The loan prime rate is seen ending 2021 at 3.72%. 

• The yuan continued to post gains in recent weeks due to solid economic growth and a significant interest rate differential due to an ultra-low interest rate environment worldwide. On 13 November, the yuan traded at 6.61 CNY per USD, appreciating 2.1% month-on-month. Looking forward, the yuan is expected to broadly remain at current levels. Our panelists see the yuan ending 2021 at 6.67 CNY per USD and 2022 at 6.74 CNY per USD.

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