China: Briefing sheet

Content Type
Country Data and Maps
Economist Intelligence Unit
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Politics, Summary, Outlook, Briefing sheet
Political Geography

Political and economic outlook

  • China is the world's second-largest economy and an industrial powerhouse. Growth is driven jointly by consumption and investment, but the authorities hope to pivot more to the former. However, the conservative scope of reforms will undermine this goal.
  • China's president, Xi Jinping, is dominant within the ruling Chinese Communist Party and will extend his term in power beyond the usual decade at the 20th party congress in late 2022. Political centralisation and a tough line towards dissent will continue.
  • Economic policy is shifting in response to an increasingly challenging external environ-ment. The "dual circulation" strategy emphasises security and self-sufficiency rather than efficiency, amid deepening tensions with the US.
  • China was probably the only G20 economy to register positive GDP growth in 2020. Expansion will accelerate in 2021 as consumption recovers and exports remain firm. Demographic and productivity trends point to declining growth further ahead, however.
  • The recent strong momentum behind the currency, the renminbi, will dissipate in 2021 as markets lower their expectations for an improvement in US-China ties and a large US stimulus package firms up the value of the US dollar.
  • China is getting old before getting rich. Income levels have reached only one-third of those in economies with a similar proportion of elderly people, such as South Korea and Taiwan. Demographic challenges will drive technological change.
  • There will be no reset in US-China relations under the new US president, Joe Biden. China may consider developing its own alliance system or economic bloc.
Key indicators
  2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth (%) 2.3 8.5 5.0 5.2 4.8 4.5
Consumer price inflation (av; %) 2.5 1.6 2.6 2.5 2.3 2.2
Government balance (% of GDP) -5.3 -4.8 -4.6 -4.9 -5.0 -4.8
Current-account balance (% of GDP) 2.0 2.6 2.6 2.3 1.9 1.6
Money market rate (av; %) 2.3 2.3 2.4 2.6 2.8 2.9
Unemployment rate (%) 5.2 5.0 4.5 4.5 4.3 4.2
Exchange rate Rmb:US$ (av) 6.90 6.54 6.73 6.62 6.52 6.43
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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Key changes since February 9th

  • We have widened our forecast for the budget deficit in the next five years to an annual average of 4.8% of GDP, from 4% of GDP previously. Investment in the welfare system will mean that the deficit remains stubbornly wide, rather than narrowing.
  • We have strengthened our forecast for the renminbi in 2023-25 to assume that the currency will now appreciate against the US dollar in those years, rather than weaken. Stronger productivity growth in China than in the US suggests appreciation.
  • We have lifted our forecast for the current-account surplus over the 2021-25 forecast period to an annual average of 2.2% of GDP, compared with 1.6% of GDP previously. We are sceptical that domestic demand will strengthen sufficiently to narrow the surplus.

The month ahead

  • March 11th-"Two sessions" conclude: The annual political meetings will include a vote on the passage of the 14th five-year plan (2021-25). The premier, Li Keqiang, normally holds a press conference to mark the conclusion of the meetings.
  • March 15th-January-February economic data: Data for industrial production, fixed-asset investment and retail sales will be released for the first two months of the year to minimise distortions caused by the variable timing of the Lunar New Year.

Major risks to our forecast

Scenarios, Q4 2020 Probability Impact Intensity
Property prices slump in smaller cities High High 16
Regulators target foreign companies amid international tensions Very high Moderate 15
Political tightening impairs the functionality of information technology for foreign firms Very high Moderate 15
A significant bank collapses, causing a financial crisis Moderate Very high 15
Ongoing corruption destabilises the higher levels of the ruling Chinese Communist Party High Moderate 12
Note: Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential developments that might substantially change the business operating environment over the coming two years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

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