China’s economic recovery is clearly gaining momentum. Official manufacturing PMI has been on the rise, strong credit growth points to a recovery in investment and exports have surged. One laggard is the sluggish recovery in private consumption, but we see this gradually catching up with the rest of the economy in the coming quarters as the labour market gradually improves. 

The result is our GDP growth forecasts of 8.5% for 2021 and 5.6% for 2022. On a sequential basis, we see the economy slowing gradually as most of the recovery has already occurred. 

Meanwhile, we expect inflation to remain muted in 2021. CPI and PPI deflation is likely to continue in the first part of 2021. In our view, weak core inflation shows that China is still in an uphill battle to achieve a full recovery in domestic demand. This is why the latest Politburo meeting on the economic outlook in 2021 still called for continuous efforts to achieve the goal of its “six-stability” policy which emphasises areas from employment to foreign investment. Therefore, we think Beijing is likely to look through the soaring y-o-y GDP growth in early 2021 and maintain a supportive policy stance. We expect some emergency fiscal measures such as special central government bond issuance will not be continued in 2021, resulting in a less expansionary fiscal stance, while the unwinding of monetary policy easing will likely be moderate and gradual.