the growth rates of an earlier era is not in itself all that remarkable. Most economies
bouncing back from the covid-19 pandemic in 2021 are likely to expand at
uncharacteristic speed, having shrunk at an unprecedented pace the year before. What
sets China apart is that it will also manage to have grown, albeit modestly, in 2020.
The prompt recovery means that China’s GDP for 2021 will be within touching distance
of pre-pandemic predictions. Back in December 2019, for example, The Economist
Intelligence Unit forecast that China’s GDP would be about $15.8trn in 2021. Now it is
predicting it will be a little more than that (thanks in part to a weaker dollar).
No other big economy will recover as thoroughly, including those that have handled
covid-19 relatively well. Japan, for example, will fall short, as will Germany. Indeed,
China’s economy may well overtake the combined GDP of the European Union in 2021
or thereabouts.
China’s recovery has not, of course, been well balanced or evenly spread. It was helped
by exports, which have captured a record share of the global market. Hot items include
masks and sanitisers to satisfy the global demand for personal protection, and
televisions and consumer electronics to meet the global demand for personal
distraction.
Investment, especially in infrastructure and property, also contributed, supported by
strong credit growth. In August 2020 China State Railway said it would link every city
with at least half a million people to the country’s high-speed network, almost doubling
it in size by 2035. Household spending, by contrast, has lagged. Private consumption
will make a smaller contribution to China’s growth in 2020 and 2021 than investment
will. The last time that happened was 2015.
An unbalanced recovery is better than no recovery at all. But China’s growth pattern
will nonetheless create some headaches for the country’s policymakers in 2021. It has
set back their gradual efforts to wean the country off its dependence on investment
spending. And it has reversed some of the progress of its “deleveraging” campaign,
which briefly succeeded in stabilising China’s debt, relative to the size of its economy.
When the deleveraging campaign was introduced in earnest in 2016, a Communist
Party insider, identified only as an “authoritative person”, explained its logic in an
interview with the People’s Daily, a party newspaper. The insider complained that
China’s stability relied on the “old method” of investment stimulus, and pointed out that
“a tree cannot grow to the sky” to justify the government’s efforts to prune China’s debts
before too many decayed limbs came crashing down. Do not be surprised if the same
authoritative person makes another appearance in 2021. China’s policymakers need to
become reacquainted with how to rebalance and deleverage the economy without
killing growth.
For most economies, the pandemic has ushered in a tentative new world, marked by
fragile recoveries, uncharted policies and up-in-the-air business models. But in China,
things are different. The virus has instead returned the economy to a familiar policy
juncture. Just as its GDP figure for 2021 would not surprise anyone who had slept