China's economy, which has been leading the world economic recovery in 2020, is gaining momentum in 2021. Recent data reveals that exports soared in the last three months and are up 32.3% in U.S. Dollar terms from a year ago. They are expected to remain robust for the rest of the year as the world economy recovers, according to Oxford Economics:
"Global shipping delays and supply chain disruption may complicate the Q2 export outlook, while the likely retreat of pandemic-related demand (for personal protective equipment, computers, and laptops) could dampen China's exports later this year. Nonetheless, we expect a strong global economic recovery to underpin China's exports through 2021."
Meanwhile, consumer spending soared in April to record levels, driven by higher tourism and travel spending. "In China, almost all consumers have already returned to normal out-of-home activities, and 97 percent of respondents report working outside the home," says a recent McKinsey report.
"Consumption should also gain pace again as consumers become more comfortable with public health conditions and their economic situation," adds Oxford Economics. "But the less generous fiscal and monetary policy will weigh on infrastructure and real estate investment after last year's rapid growth. The shift in growth drivers will support imports of capital goods more than commodity imports."
Stronger imports, in turn, could help ease China's tensions with its trade partners, making the growth in exports sustainable.
Still, Oxford Economics sees a couple of headwinds that could slow down China's economic momentum, like a slow-recovering labor market and a slow pace of vaccination, which makes it unlikely to meet the target of inoculating 40% of the population by June.
But there are long-term headwinds, too. One major headwind is the low marriage rates that the country will see as the generations born under the "one-child policy" come of age. Due to the smaller numbers of the generation and the gender imbalace it caused, it will likely result in continued low birth rates and a shrinking labor force. The economy will also increasingly need to support the older generations that will be leaving the labor market.
A shrinking labor force, 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.
Disclosure: No positions
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