【Economic Perspectives】China Economy in 4Q20 – Growth beat; resurgence of COVID-19 may complicate near-term business outlook

China’s economy advanced further toward pre-pandemic levels. GDP increased 6.5% YoY in 4Q20, exceeding long-term trend line and was primarily boosted by booming industrial production and catching-up of the tertiary sector. Annual GDP growth was 2.3% YoY in 2020 (-6.8%/3.2%/4.9% in 1Q/2Q/3Q). Household disposable income growth and employment conditions also improved in pace with macroeconomic recovery in 4Q20. While we stay positive on China’s economic recovery bolstered by vaccines worldwide, we point to some risk factors, including the resurgence of COVID-19 cases and consumption uncertainties.

 

  • Industrial production achieved broad-based acceleration in Dec 2020, boosted by both export and domestic demand. Industrial output increased 7.3% YoY in Dec 2020 and 7.1% in 4Q, lifting annual growth to 2.8% in 2020. High-tech manufacturing speeded up to grow 13.1% in Dec. Equipment and machinery manufacturing growth also outpaced.

 

  • FAI strengthened by manufacturing and real estate in Dec-20. 1) Manufacturing FAI achieved double-digit growth in both Nov and Dec 2020, narrowing annual decline to 2.2%. It could gain stronger footing in 2021 on back of global economic recovery, technological advance and government support. 2) Real estate investment stood up well thanks to robust construction expenditure and land acquisition spending, +7.0% in 2020. It may edge down to ~5% in 2021, resulting primarily from the cool down of land market. 3) Infrastructure FAI decelerated to ~0% in the month of Dec 2020 partly due to cold weather conditions.

 

  • Retail sales increased 4.6% YoY and 1.24% MoM in Dec 2020, decelerating mildly after some demand has been exhausted during the Nov shopping festival. Sales of cosmetics, jewellery, consumer electronics and automobiles decelerated in Dec 2020 compared to Nov 2020. Catering revenue, however, speeded up to increase 3.6% YoY in Dec 2020 for the above-designated-size sample and 0.4% YoY for the whole sample, indicating continued recovery.

 

  • Risks. 1) Resurgence of new COVID-19 cases. As of 17 Jan 2021, 1,265 new COVID-19 cases were reported this year, including 1,020 local cases primarily in Hebei and the northeast provinces. Beijing also reported scattered cases. Although the rest of China remains safe and economic activities are intact, we should be alert to risks regarding regional economies of affected provinces. Policy guidance of avoiding travel during the Chinese New Year would also have bitter ramifications on airline and travel-related industries, and may imply meaningful changes in household consumption behavior and economic data in 1Q21. 2) Lack of consumption boost. Although last year’s low base is likely to spook double-digit retail sales growth in 2021, there still remain uncertainties regarding consumption growth after demand for durables are gradually exhausted.
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