China’s impressive economic recovery will continue to attract significant foreign investment throughout 2021, but risks remain – and it won’t be helped by Beijing mocking the recent violence in Washington.
After a considerable drop in the first quarter of last year, economic activity in China – the world’s second-largest economy – has rebounded more quickly than expected, supported by an effective strategy against the Covid-19 pandemic, robust policy measures and strong exports.
The country recently reported increased industrial output and retail sales toward the end of 2020, and its benchmark index the CSI 300, which tracks shares on the Shanghai and Shenzhen stock exchanges, added more than 27% year on year.
I believe that this trend of piling into Chinese stocks can be expected to continue throughout 2021 as investors around the world seek growth and are betting on a likely continued and sustainable recovery in the People’s Republic.
Yet despite the positive outlook, there are, as always, risks remaining too.
There are the concerns of fresh Covid-19 outbreaks that could disrupt economic activity, despite efforts to halt the spread of the virus.
The impact of the pandemic has also exacerbated “pre-existing and interconnected vulnerabilities of corporate, bank and government balance sheets,” according to the World Bank, which will weigh on China’s growth.
In addition, the global economy is anticipated to remain challenging and highly uncertain over the next 12 months, meaning a less buoyant market to which to sell goods.
And, critically, ongoing bilateral tensions with the US over trade and technology will continue to be a threat to a long-term recovery, especially because of resurfacing international imbalances as a result of the pandemic.
There is great hope that as Joe Biden becomes the next president of the United States there could be more stable and normalized relations between the world’s two largest economies.
This would be in both countries’ interests, as cooperation would help boost global economic growth – thereby giving them stronger export markets, encouraging investment, securing jobs, keeping prices down for consumers, reducing unfair or illegal economic, commercial and technological practices, reducing poverty and environmental problems, and contributing to stopping human-rights abuses and military interventions.
As such, it is disappointing to see Chinese officials gleefully commenting on the violence that erupted at the US Capitol on Wednesday.
Specifically, a Chinese Foreign Ministry spokeswoman, among others, likened the US unrest to Hong Kong’s pro-democracy protests in 2019. “When similar things happened in Hong Kong, some Americans and US media reacted differently,” Hua Chunying said.
This can only serve to whip up the anti-China stance further in Washington – just as both parties should be hitting the “reset” button on diplomatic relations.
This could hamper China’s thus far bold economic recovery. Securing amiable relations is not just about diplomacy, it’s also about economics.
Although the People’s Republic’s foreign-investment-aided rebound will, once again, be strong this year, political point-scoring will not help Beijing’s efforts to maintain it.
Nigel Green founded deVere Group in 2002 from a single office in Hong Kong after discovering a niche market for expatriates in the financial services sector. Since then, it has grown to become one of the largest independent financial advisory organizations in the world with offices and clients across the globe.