CHINA WILL LEAD THE GLOBAL ECONOMIC REBOUND
STRONG ECONOMIC RECOVERY TO CONTINUE IN 2021
China’s swift containment of the pandemic in early 2020 enabled the country to record a rapid economic rebound. GDP returned to expansionary territory in Q2 2020, registering full-year growth of 2.3%. Key industries including manufacturing, fixed asset investment, imports, exports and retail sales all recorded annual growth. CBRE expects China to register GDP growth of 8.2% in 2021, underpinned by the new “dual circulation” economic development strategy.
DUAL CIRCULATION TO BOOST GROWTH
"Dual circulation” lies at the centre of China’s 14th Five-Year Plan (2021-2025) and beyond. The strategy involves leveraging China’s large domestic market while retaining the existing “opening-up” policy to create more balanced development. Economic development over the next five years will therefore rely more upon domestic consumption and technological innovation. Rising incomes and urbanisation will ensure China remains an attractive retail destination for both overseas and domestic players. The government will provide higher incentives to improve infrastructure and increase the adoption of advanced technologies such as 5G and AI. This will support the incubation and sustainable development of more local startups.
The “opening-up” of China’s financial industry to overseas investors has led to the increased participation of foreign financial institutions from the banking, insurance, securities and asset management industries, many of which set up new entities or expanded their China business in 2020.
Although challenges related to deglobalisation and the China-U.S. relationship remain, the recent signing of the Regional Comprehensive Economic Partnership (RCEP) is seen as an important milestone in the “opening-up” policy. The removal of trade barriers and reduced business costs will help spur growth in manufacturing, trading, consumption and logistics in 2021 and beyond.
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MACROECONOMIC POLICY EXPECTED TO REMAIN ON EXISTING COURSE
MORE INVESTMENT IN ECONOMIC GROWTH ENGINES
Although the quantum of financial stimulus in 2021 will be reduced from that deployed in 2020, the central government has pledged to retain existing macroeconomic policies. This will see a continuation of positive and stable monetary and fiscal policy.
Fiscal administration is expected to normalise as the pandemic remains largely under control. With authorities unlikely to continue to grant large amounts of pandemic-related debt, the financial deficit ratio will fall back to a certain extent. Tax income, including value-added tax and business income tax, will increase as local business activity continues to pick up. Although some fiscal income will be deployed for vaccine development and inoculation, more expenditure has been earmarked to support the industries driving economic growth.
STABLE AND FLEXIBLE MONETARY POLICY
During 2020, the People’s Bank of China (PBoC) supplied liquidity to support the economy, resulting in a net investment of RMB 1,304 billion. This released about RMB 1.75 trillion in long-term funds through the reduction of the Reserve Requirement Ratio (RRR). The PBoC also lowered interest rates several times to reduce companies’ financing costs.
Despite the normalisation of monetary policy, the PBoC is unlikely to take any tightening moves as China’s economic structure adjusts to the new “dual circulation” policy. Monetary policy is therefore likely to remain stable and flexible.
The cost of capital is likely to remain unchanged, with a low chance of reductions to the RRR and official interest rates.