Chinese economy needs more measures to boost demand in 2021

18 January, 2021 12:00 AM printer

BEIJING: Strong momentum in Chinese economic recovery has continued into the beginning of 2021, thanks to the efficient control of COVID-19 by local governments. The economy may have returned to the pre-pandemic era in the fourth quarter last year, which means the new stimulus will be much more limited compared to last year, and policymakers are likely to focus on finding new ways to boost domestic demand.

The Chinese economy has been recovering at a much faster pace compared to most of the major economies in the world, and the country is set to become one of the major economies to score positive GDP growth in 2020, report agencies.

China will report the fourth quarter GDP on January 18, and the growth figure is likely to exceed the same period in 2019. Industrial output grew 6.9 percent and 7.0 percent in October and November last year, and manufacturing PMI for the month of December suggested the growth momentum was maintained.

The Chinese economy grew 6.0 percent in the last quarter of 2019, the period before the outbreak of COVID-19. Based on our estimates, the fourth quarter GDP may have grown faster than 6.0 percent. If the prediction is accurate, the nation’s economic activities have returned to pre-pandemic levels.

China’s manufacturing activities have been expanding since March, according to the key factory data. The official manufacturing PMI has been above the key 50-level for 10 consecutive months, with its new order index approaching to the highest level in more than two years. New order PMI index is a leading indicator in reflecting domestic demand; a rising index shows that the recovery in domestic factory activities will continue.

Moving into 2021, many small and medium-sized private companies may face increasing challenges this year due to recent rises in global virus cases. Still, a large-scale stimulus package is not likely to be implemented this year as gradual recovery in growth activities may not require further aggressive stimulus measures.

On January 15, the Chinese central bank unexpectedly drained liquidity from the financial system for the first time in half a year through the MLF (Medium Lending Facility). This outcome reflects that the central bank intends to gradually exit its latest round of easing cycle, or it views the current liquidity in the financial system to be ample. Either possibility nearly ruled out further substantial monetary measures in the short term.