A year after the start of Covid, the Chinese economy beats the world

Photographer: Qilai Shen / Bloomberg

China’s economic rise is accelerating just a year after its first coronavirus lockdowns, as its success in controlling Covid-19 allows it to increase its share of global trade and investment.

The world’s second-largest economy is expected to report a 2.1% gross domestic product increase in 2020 on Monday, the only large economy to have avoided a contraction, according to a Bloomberg survey of economists.

This should ensure that its share of the world economy grows at the fastest rate of this century. Global production fell 4.2% last year, according to the World Bank, pushing China’s share to 14.5% at 2010 dollar prices – two years ahead of schedule.

Full steam ahead

China’s share of global economy set to grow at a faster pace

Source: IMF, World Bank, McKinsey & Company

And it’s not just a failure that will reverse once other major economies start to recover with the vaccine rollout. Economists expect China’s GDP to grow 8.2% this year, continuing to outpace global peers, including the United States

China is now on track to make the United States the largest economy in 2028, said Homi Kharas, deputy director of the global economics and development program at the Brookings Institution, two years faster than he was had previously estimated it.

After resisting President Donald Trump trade war, China is deepening economic ties in Asia and Europe and looking to domestic consumption to fuel its next phase of growth. President Xi Jinping said this week that “the weather and the situation” were on the country’s side in another year marked by domestic unrest in the United States.

Read more: Optimistic Xi ​​tells the time on China’s side as turmoil grips us

If the success of its local virus control continues, the pandemic could help China “consolidate its position in the global economy,” said Ka Zeng, director of Asian studies at the University of Arkansas. US and European companies are likely to focus more on China because of the “potential for the country to be the only major source of growth in the post-pandemic world.”

China’s record rise in global GDP share was just one of many milestones in its economy last year:

• The economy has converged with the United States at the fastest pace on record. China’s GDP was 71.4% of U.S. levels in 2020, according to the International Monetary Fund, up 4.2% from the previous year
• The share of world trade has increased as exports linked to the pandemic have increased. Already the world’s largest exporter, shipments from China increased 3.6% in 2020, according to official data. Total world trade probably contracted by 5.6%, according to estimates by the United Nations trade and development body UNCTAD
• China has probably regained the title of the world’s top destination for foreign investment, which it lost to the United States in 2015. Foreign investment in China reached more than $ 129.5 billion through November 2020, slightly above the previous year. Globally, FDI flows are likely to 30-40% year-over-year drop in 2020, according to UNCTAD
• The Fortune Global 500 the list of the world’s largest companies by revenue for the first time contained more companies based in China, including Hong Kong, than in the United States: 124 against. 121
• Received at the cinema box office all year round passed the United States for the first time
• Sovereign debt was added to the benchmark FTSE Russell, completing the country’s inclusion in the three major global bond indices. Foreign investors bought 1.1 trillion yuan ($ 170 billion) of Chinese bonds in 2020

The increased role of China in a post-pandemic world increases the urgency of the debate among the rest of the world on how to engage with Beijing. While the Trump administration has imposed tariffs and restricted access to key technologies, other countries have sought closer trade and investment ties.

Fifteen Asian countries, including China, signed the Comprehensive Regional Economic Partnership pact in November, promising to reduce trade barriers in the region. In December, the European Union agreed to a comprehensive agreement investment agreement with China.

“Countries will have to face a bipolar world rather than a unipolar world,” said Bo Zhuang, chief economist for China at TS Lombard.

What Bloomberg Economics Says …

“Not only China’s growth, but also the pattern of its growth is important to the world economy. China continues to strive to move towards greater dependence on consumption for growth. For the rest of the world, China will increasingly become a consumer in addition to the role of producer it has long played. “

– Chang Shu, Chief Economist for Asia

Chinese leaders generally downplay economic milestones, such as its economic output surpassing that of Japan in 2010, for fear of scaring off those already wary of its rise. Yet Beijing announced this year that it will aim to double GDP from 2020 levels by 2035, a goal that implies a march to number one.

Still, there is no guarantee that this will happen. China has proven the pessimists wrong in 2020, but faces huge challenges ranging from deteriorating relations with the United States could limit its access to technology, an over-reliance on debt-financed investments and a rapidly aging population.

Read more: Here’s how fast the Chinese economy is growing Until United States

China’s role as a factory in the world was boosted last year as it pumped up face masks, medical equipment and home work equipment. As political leaders such as Frenchman Emmanuel Macron pledged to manufacture more at home after the pandemic – echoing American rhetoric on China ‘decoupling’ – any changes to diversify production will be gradual due to the high costs involved.

Stronger recovery

China’s economy set to accelerate further this year, even as others stagnate

Source: National Bureau of Statistics, Bloomberg surveys

Multinational companies have another reason to maintain or even add to their investments in China: the fast growing consumer market, which is already eclipsing the United States and Western Europe in some sectors.

China now represents a quarter of the world’s middle class, defined as the population spending between $ 11 and $ 110 per person per day on purchasing power parity in 2011, a milestone that “would not have been reached before. two years if Covid-19 hadn’t It didn’t happen, ”said Kharas of the Brookings Institution.

General Motors Co and Volkswagen AG continued to sell more cars in China than in their domestic market last year. Starbucks Corp. plans to open around 600 new stores this year, while Nike Inc. reported China sales of $ 2 billion for the first time in the quarter ended in November.

“We have watched wave after wave of the pandemic hit different markets,” Nike CFO Matthew Friend said on an investor call in December. “And really, the only market where we’ve seen some kind of continued trajectory in terms of handling the virus has been China.”

– With the help of James Mayger

(Updates with details of in-chip bond purchases.)