China: Country outlook

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Country Data and Maps
Economist Intelligence Unit
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Economy, Outlook, Forecast, Overview
Political Geography

China: Country outlook


POLITICAL STABILITY: Risks to domestic political stability, including those stemming from the coronavirus (Covid-19) outbreak, are low. China's president, Xi Jinping, who heads the ruling Chinese Communist Party (CCP) and the military, has successfully framed his actions as having halted the domestic spread of the virus. State media have pushed a narrative highlighting these measures as underpinning China's success in combating the virus, particularly in comparison with the US and Europe. In this context, Mr Xi's opponents within the political elite will find little opportunity to agitate.

ELECTION WATCH: The next political reshuffle will begin in autumn 2022, when the CCP will hold its 20th national congress, and be completed in spring 2023 when state appointments will be made. We believe that Mr Xi will retain his leadership of the party, military and state. Mr Li will be constitutionally required to step down as premier after two consecutive terms. He could be replaced by Li Qiang (the CCP secretary of Shanghai) or Hu Chunhua (a vice-premier). Of the five remaining members of the top-level politburo standing committee, two (Li Zhanshu and Han Zheng) are due to retire, in line with unofficial age limits. However, it is uncertain if this norm will continue to apply, given Mr Xi's own plans to delay his retirement.

INTERNATIONAL RELATIONS: Having established control over the pandemic domestically, China will enhance its support for other countries in 2021. The goal will be to mitigate the international perception of China as the origin of the coronavirus and will include the priority distribution of a Chinese-manufactured vaccine to select international partners.

POLICY TRENDS: Policy support for the economy will soften in 2021, as economic momentum builds and intermittent coronavirus outbreaks remain small in scale and quickly controlled at local level (although outbreaks across northern China in January 2021 present risks to these assumptions). Policymakers have signalled a tighter liquidity stance and that reining in debt levels will return to being economic policy priority. They will seek to limit market disruption from such moves, such as through encouraging corporate restructurings rather than outright bankruptcy.

ECONOMIC GROWTH: We forecast real GDP to grow by 8.5% in 2021, accelerating from an estimated 2.3% expansion in 2020. Further national-level restrictions in response to the pandemic are unlikely, given that China has successfully contained the virus, which will contain disruption to the economy. However, city-level lockdowns and transportation restrictions in response to outbreaks will still cause localised disruption, and tight border controls mean that there will be no resumption of short-term international travel.

INFLATION: We forecast that consumer price inflation will moderate in 2021, to 1.5%, from an estimated 2.5% in 2020. The deceleration will reflect the recovery in pork supply from the effects of African swine flu, which will drag food prices down. Inflationary pressures will come from non-food categories mainly, including an expected rise in fuel costs as global oil prices rise. Consumer price inflation will average 2.4% in 2022-25.

EXCHANGE RATES: The marked strength of the renminbi in the second half of 2020 will persist into the first half of 2021. This will reflect sustained foreign interest in the country's liberalising financial sector; the attractive bond yields on offer; and positive investor sentiment towards China's economic recovery (when benchmarked against other markets).

EXTERNAL SECTOR: Trade performance will pick up in 2021, underpinned by stronger global growth that year. We expect the value of goods exports to rise by 10.8% in US-dollar terms, supported by the global vaccine rollout and ongoing demand for healthcare equipment, for which China is an integral part of the supply chain. The value of goods imports will expand by 7.2% that year, amid a recovery in global commodity prices and stronger domestic demand. We expect the global vaccine rollout only to begin to make headway in most markets by 2022, deferring a recovery in outbound travel until that year. Thereafter, the release of pent-up demand for overseas tourism will steadily reduce China's current-account surplus as services imports recover.

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