A challenging year for China's economy saw the realization of the first centenary goal of building a moderately prosperous society, while the COVID-19 pandemic resulted in stagnation negative growth and a surprising bounce back in the second half.
Photo from CFP
By XIN Yuan, FAN Xu, NIE Lin, CHEN Peng
The year 2020 has been the most challenging for China's economy in the 21st century, and was also the year that China aimed to realize the first centenary goal of building a moderately prosperous society in all respects. Nonetheless, the onset of the COVID-19 pandemic in early 2020 resulted in clogged traffic, factory shutdowns, and sales stagnation, plunging the world’s second-largest economy into rare negative growth in the first quarter. Thanks to a string of powerful measures by the government, the pandemic has been contained, coupled with a sharp snapback in the economy. The country's economy rebounded from minus 6.8 percent in the first quarter to 3.2 percent in the second quarter, before gathering pace in the third quarter to notch up a gain of 4.9 percent. China is highly likely to be the only major country that maintains positive economic growth this year.
Looking back on this year, the coronavirus is in the driver's seat to a large extent, not only manifested in more proactive fiscal policies and prudent monetary policies, but also in the ups and downs of varying sectors. As the year comes to an end, Jiemian News takes stock of 10 keywords for China's economy in 2020.
On May 14, China proposed a new development pattern in which domestic and foreign markets boost each other. On July 30, China underlined the significance of a new development pattern relying on both domestic and international economic cycles, with the domestic cycle serving as the mainstay. On November 3, "dual circulation" was written into the proposals for formulating the 14th Five-Year Plan (2021-2025) and the Long-Range Objectives Through the Year 2035.
Three factors contributed to the birth of dual circulation. Initially, following the 2008-09 financial crisis, the global economy had been subject to tepid growth and widening wealth disparity. This year's COVID-19 pandemic has given rise to protectionism and populism, which added uncertainty to overseas demand, one of the overriding driving forces of China's growth.
Next, China-U.S. relations have deteriorated in the past two years. The United States spares no efforts to suppress Chinese high-tech companies in an attempt to weaken China's "late-mover advantage" in technological progress. Therefore, China needs its own innovation, so that high-end manufacturing fields for the likes of chips and operating systems.
Lastly, China has the world's largest middle-income group, and in 2019, its per capita GDP exceeded the US$10,000 mark for the first time. Growth potential will inevitably shift from external demand to the domestic market, the foundation for a hyperscale consumer market.
“Stability on six fronts and security in six areas" is a fairly visible term in this year's government documents and media reports.
The six fronts are employment, finance, foreign trade, foreign investment, domestic investment, and market expectations. The Communist Party first put forward the concept in July 2019, in the wake of the pressure on the macroeconomy.
In April of this year, the CPC Central Committee put forward “security in six areas”: employment, basic livelihoods, market order, food and energy security, supply chains and local government.
This year's government work report made it clear that the guarantees serve as the thrust of priorities work. By sticking to the six guarantees, China can stabilize the economic fundamentals and seek progress while maintaining stability, a solid foundation for a well-off society.
Employment is the first necessity of the people and tops the list of guarantees. Measures to ensure stable employment for groups such as migrant workers and graduates were taken, for the companies, which mostly were impacted by the pandemic in the first half of the year, their corporate taxes were reduced and some of their social insurance payments were deferred.
Of 39 executive meetings of the State Council held in the first 11 months, at least 20 involved helping smaller enterprises, ensuring the resumption of work and production, reducing taxes and fees, and offering financial support. On June 17, the State Council called on banks to sacrifice their 1.5 trillion yuan in profits and set a specific target for these concessions.
The IMF projected that buoyed by these measures, China's economy will grow by 1.9 percent in 2020, the only major economy in positive territory.
This year saw the completion of a well-off society in all respects, the first goal of two centenary goals, with poverty alleviation a key step.
By the end of 2019, deep poverty only included 2 percent of the people. The COVID-19 pandemic unquestionably brought difficulties for this remaining 25 million or so people. Migrant workers could not return to work, agricultural produce was unsellable, and rural infrastructure projects were suspended. But with concerted efforts, even under the impact of the pandemic, the net operating income of rural residents in impoverished areas rose 4.9 percent in the first half of 2020, much higher than GDP growth.
On November 23, southwest China's Guizhou Province announced that its last nine poverty-stricken counties had been removed from the country's poverty list, the last of the 832 poverty-stricken counties determined by the State Council Leading Group Office of Poverty Alleviation and Development.
Consolidating these achievements is a major objective of the new five-year plan with a sweeping revitalization of rural areas.
Deadlock caused by the coronavirus compelled countries to examine risks in their industrial chains, rethinking and rearranging the global chain.
China's export growth gathered pace in the second half of this year, with the November reading at its highest level in 19 months. The pandemic has dragged down European and American manufacturers, thus adding to dependence on Chinese commodities. The European Chamber of Commerce in China’s Business Confidence Survey found 89 percent of companies surveyed still planning to invest in China with 65 percent rating China as one of the top three investment destinations.
However, in several key manufacturing areas, there is still a long way to go, As the global industrial chain restructures, China must improve its industrial and supply chains fast, especially basic research, and further open up the domestic market to be ready for the international transfer of high-end manufacturing.
An anti-food waste law will set up long-term mechanisms against food waste and establish codes of conduct for catering and daily food consumption across society.
After some 40 years of reform and opening up, advocating saving food seems to be outdated, but food security is one of the six guarantees. President Xi Jinping has underscored the need to maintain a sense of crisis regarding food security, especially amid the fallout of the COVID-19 pandemic.
In recent months, local governments have curbed food waste in response to the central government's appeal. Guangdong Province requires catering operators to grant discounts and rewards to consumers who eat sparingly and must not champion overeating or other waste.
In October 2020, China deliberated the new five-year plan. and put forward the Long-Range Objectives Through the Year 2035.
This is the first time in 25 years that the Communist Party of China has proposed a long-range objective. In 1995, the country proposed doubling its 2010 GDP by 2020, controlling the population below 1.4 billion and forming a fully-fledged socialist market economy.
Of the 2035 objectives, the most discussed is bringing per capita GDP to the level of moderately developed countries. With no clear-cut definition of a "moderately developed country,” domestic economists generally regard US$20,000 as the threshold. In 2019, China's per capita GDP was US$10,300, implying average growth of 4.7 percent a year for the next 15 years.
Doubling the size of the economy is not officially listed as a long-range objective, but it is still an important guideline.
As of December 3, the onshore yuan-dollar spot exchange rate had risen by 8.5 percent from May. For the full year, the increase against the dollar has is roughly 5.8 percent, reversing two years of decline.
Behind the appreciation is China’s lead in recovering from the pandemic and improved fundamentals. Q2 GDP inched up 3.2 percent from a year earlier on the heels of a 6.8-percent steep decline in the previous quarter. In the third quarter, year-on-year GDP growth came in at 4.9 percent, bringing growth in the first three quarters back into positive territory. China’s trade surplus of nearly $460 billion in the first 11 months of this year is an increase of 23 percent over the same period last year.
China's forex regulator in September abolished investment quota restrictions for qualified foreign institutional investors, making it easier for foreign investors to participate in the domestic financial market. Net investment inflows from overseas into securities under the capital and financial accounts reached US$21.3 billion in October, a record high.
This was also the first full year of the digital yuan. In October, Shenzhen and the central bank began to use the new currency by issuing digital yuan in 50,000 virtual red envelopes worth 200 yuan each via a random draw, the first large-scale public test of the digital yuan, with 8.8 million yuan used for payments. Suzhou in Jiangsu Province was the next destination for the pilot scheme, issuing 20 million yuan of digital currency to citizens via a random draw. The Hong Kong Monetary Authority is working on technology for cross-border payments.
Raising the retirement age has been discussed for years and in 2020 finally went on the agenda and will be raised gradually. The retirement age has remained unchanged at 60 for men, 55 for female civil servants and 50 for blue-collar women since the 1950s.
With life expectancy on the rise, more than 250 million of China's 1.4 billion people are aged 60 and over, 18.1% percent of the population. The number of senior citizens is set to grow rapidly and exceed 500 million by 2055, leading to huge pressure on pensions. Old-age insurance funds will peak in 2027, and from then onwards decline rapidly before drying up in 2035. Postponing the retirement age is only a matter of time and the state will push forward in small, flexible steps.
Real estate has a close bearing on living standards. COVID-19 lead to stagnation in house sales and leading to two-pronged relief measures on the supply and demand sides, lowering thresholds, reducing taxes, relaxing advance sales' conditions and even granting housing subsidies. The bottom line of "houses for living in, not speculation,” is unchanged. In the second half of 2020, at least 17 major cities tightened policies against speculation to ensure stable land and house prices.
In the second quarter, the real estate market recovered. In the first six months of 2020, the average new house price picked up 1.3 percent; the average second-hand price gained 1.7 percent, but the market has cooled significantly since.
In December 2018, the annual Central Economic Work Conference put forward the concept of new infrastructure -- information infrastructure, integrated infrastructure, and innovation-related infrastructure -- pointing out that the government must lead the upgrade in manufacturing technology and use of 5G networks, creating infrastructure better internet infrastructure.
Compared with railways, highways, and airports, new infrastructure puts more emphasis on technology. The nationwide shutdown of restaurants, tourist spots and schools wreaked havoc but digital industries grew substantially.
Shanghai plans to invest around 270 billion yuan in new infrastructure in the next three years, but areas with weak “old” infrastructure should first improve transportation and water conservation.
