China's economy picks up speed in Q4, ends 2020 in solid shape after Covid-19 shock

Beijing - China GDP up 6.5 per cent year-on-year in Q4, vs Q3’s 4.9 per cent

China’s economy picked up speed in the fourth quarter, with growth beating expectations as it ended a rough coronavirus-striken 2020 in remarkably good shape and remained poised to expand further this year even as the global pandemic raged unabated.

The world’s second-largest economy has surprised many with the speed of its recovery from the coronavirus jolt, especially as policymakers have also had to navigate tense U.S.-China relations on trade and other fronts. Beijing’s strict virus curbs enabled it to largely contain the Covid-19 outbreak much quicker than most countries, while government-led policy stimulus and local manufacturers stepping up production to supply goods to many countries crippled by the pandemic have also helped fire up momentum.

Gross domestic product (GDP) expanded 6.5 per cent year-on-year in the fourth quarter, data from the National Bureau of Statistics showed on Monday, quicker than the 6.1 per cent forecast by economists in a Reuters poll, and followed the third quarter’s solid 4.9 per cent growth.

GDP grew 2.3 per cent in 2020, the data showed, making China the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic. And China is expected to continue to power ahead of its peers this year, with economists forecasting GDP to expand at the fastest pace in a decade at 8.4 per cent, according to a Reuters poll.

“The higher-than-expected GDP number indicates that growth has stepped into the expansionary zone, although some sectors remain in recovery,” Xing Zhaopeng, economist at ANZ in Shanghai.

“Policy exiting will pose counter-cyclical pressures on 2021 growth.”

Backed by the strict virus containment measures and policy stimulus, the economy has recovered steadily from a steep 6.8 per cent slump in the first three months of 2020, when an outbreak of Covid-19 in the central city of Wuhan turned into a full-blown epidemic.

Asia’s economic powerhouse has been fuelled by a surprisingly resilient export sector, but China’s consumption - a key driver of growth - has lagged expectations amid fears of a resurgence of Covid-19 cases.

Data last week showed Chinese exports grew by more than expected in December, as coronavirus disruptions around the world fuelled demand for Chinese goods even as a stronger yuan made exports more expensive for overseas buyers.

Yet, underscoring the massive Covid-19 impact worldwide, China’s 2020 GDP growth marked its weakest pace since 1976, the final year of the decade-long Cultural Revolution that wrecked the economy.

Overall, the slew of brightening economic data has reduced the need for more monetary easing this year, leading the central bank to scale back some policy support, sources told Reuters, but there would be no abrupt shift in policy direction, according to top policymakers.

On a quarter-on-quarter basis, GDP rose 2.6 per cent in October-December, the bureau said, compared with expectations for a 3.2 per cent rise and a revised 3.0 gain in the previous quarter.

Highlighting the weakness in consumption, retail sales fell 3.9 per cent last year, marking the first contraction since 1968, records from NBS showed. Growth in retail sales in December missed analyst forecasts and eased to 4.6 per cent from November’s 5.0 per cent, as sales of garments, cosmetics, telecoms and autos slowed.

However, China’s vast manufacturing sector continued to gain momentum, with industrial output rising at a faster-than-expected rate of 7.3 per cent last month from a year ago, hitting the highest since March 2019.

Lingering risks in 2021

Ning Jizhe, head of China’s statistics bureau, told a briefing that there would be many favourable conditions to sustain China’s economic recovery in 2021.