China's economy is expected to lead global economic growth in 2021, according to a report published by Oxford Economics Research (OER) earlier this week:
"China's economy ended 2020 on a stronger note than we expected, with industry growth especially rapid. We have also revised up our outlook for exports, and, relatedly, manufacturing investment. Overall, we now expect China's GDP growth in 2021 will be 8.9%, compared to 8.1% previously."
China's strong economic performance stands in sharp contrast to other major world economies. America's GDP contracted 2.50% in the fourth quarter of 2020 compared to the same quarter of the previous year, while Japan and the Euro-zone fared far even worse (see table below).
| Country | GDP year-over-year growth (%) |
| China | 6.5 |
| US | -2.5 |
| Japan | -5.80 |
| Euro-zone | -5.10 |
Source: Tradingeconomics.com
Industrial growth and exports have been the key drivers behind China's strong performance, with domestic demand lagging far behind.
In December, the industrial value-added index reached 108.1, or 8.1% above the Q4 2019 pre-Coronavirus level. Real exports were 17.3% above the Q4 2019 level, a 4.9% quarter-over-quarter increase. Domestic demand was 10.2% above the 2019 Q4 level, growing 3.6% month-over-month in December and 6.5% quarter-over-quarter in Q4.
China's over-reliance on exports could renew frictions with its trade partners, as they struggle to revive their economies and return to the pre-pandemic levels. According to a report published last week, the U.S. Congressional Budget Office (CBO) expects economic activity to rebound "rapidly" in 2021, but it won't reach pre-pandemic levels until the mid-2021.
The renewal of trade frictions could taper China's growth prospects for 2021, something that I think the Oxford Economics rosy forecast doesn't seem to have taken into consideration.
Additonally, the low marriage rates that the country will see as the generations born under the "one-child policy" come of age will likely result in continued low birth rates and a shrinking labor force. This, along with the growing GDP, means poorer and more labor-rich countries like Vietnam, Sri Lanka, the Philippines and Bangladesh will likely take over more of China's role as low-wage mass-production regions.
Meanwhile, a dramatically shrinking population also results in unfavorable "dependency rates" - too few workers who will have to support too many retirees, as has been the case in neighboring Japan. The difference is that China is still at a much earlier stage of capitalism than Japan is, which will exacerbate this problem.
Thus, in my view, China's prospects for leading the global economy to a sustainable growth path in 2021 depend on the Chinese government's ability to deal with the above-mentioned issues.
Disclosure: No positions
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