• Consumption Trends – Labor market weakness and lagging income recovery – in particular for young people and low-income households, i.e. the “mass market” – will continue to drag on aggregate consumption recovery in the near-term. However, spending on travel and leisure services should see strong recovery as vaccine rollout progresses and public life fully normalizes.

• Trade Trends – Strong export growth continues on the back of surging demand for industrial products. The near-term export outlook is optimistic for as long as the global supply shortage of industrial products lasts.

Implications for Business

Adjusting for 2020 base effects, January-February 2021data indicate softening consumption and investment growth amidst continuing strong industrial production. Strong external demand and rising prices, in part, are driving industrial production. Some overheating may also be in play. Regulators have strongly signaled their intention to taper stimulus and “normalize” monetary and fiscal policy. Monetary and fiscal support will almost certainly decrease from 2020 levels as regulators focus on reducing aggregate leverage and de-risking financial system hazards. This policy shift should see real estate investment growth slow and infrastructure investment growth remain subdued.

Exports, however, should remain a powerful economic driver. Assuming that production resumption will be slow and difficult for other competing export countries in the wake of COVID – and given the expected strength of the US recovery¹ – China’s exports should remain strong in the near-term. Eventually, as global production and exporting resumes, China’s recent export share gains will dissipate. 

Overall, members should expect a slowdown in China’s economic recovery that will possibly start in the second half of this year. 

¹ Forecast Update: 2021 rebound may be stronger than previously expected