Like most of the world, China’s economy has endured a turbulent year brought on by the wide reaching impact of the coronavirus.
The year started on somewhat of a bright note as on January 15 the US and China signed their phase one trade deal, signalling a pause in the tit-for-tat trade tariff war that had raged for some 18 months.
But just over a week later, China’s central government imposed a lockdown on Wuhan and several other cities as the realities of the coronavirus and its impacts began to materialise.
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The eventual nationwide lockdowns extended to travel bans and the closure of businesses and factories in the Lunar New Year period, leading to confirmation in April that China’s economy had shrank by 6.8 per cent in the first quarter.
The problems facing China’s economy had already been telegraphed in mid-March as combined data for January and February showed that industrial production, retail sales and asset investment all declined far more than analysts had expected.
China, though, avoided a recession after its economy rebounded by 3.2 per cent in the second quarter, the first major economy to show a recovery from the damage caused by the pandemic.
China was already dealing with the fallout from African swine fever outbreak of 2019, which caused pork prices to soar, while the lockdowns and transport restrictions deployed to combat the coronavirus exacerbated supply shortages, pushing the consumer price index (CPI) to 5.4 per cent in January.
But like the overall economy, China’s headline consumer inflation recovered and actually dropped into negative territory in November for the first time in 11 years. The reading of minus 0.5 per cent was caused by a 2.2 per cent year on year decline in the price of food, led by a 12.5 per cent drop in the price of pork.
China’s manufacturing and services industries activity also declined sharply at the start of the year before gradually recovering. China’s official manufacturing purchasing managers’ index (PMI) dropped to an all-time low in February, while the gauge covering sentiment in the services sector hit its lowest since November 2011.
The manufacturing sector recovered more quickly, with services taking longer to rebound as consumers shied away from venturing out due to the risk of infection.
China’s exports fell by 17.2 per cent in January and February combined compared to the same period a year earlier, but recovered to grow by 21.1 per cent from a year earlier in November as China’s factories continued to benefit from the resurgence in the pandemic in the rest of the world, led by a sharp increase in demand for materials to combat the coronavirus and for household electronic products to support the work from home movement.
For instance, exports of medical equipment and instruments rose 89 per cent in May from a year earlier, shipments of textiles, yarns and fabrics (including masks) rose 77 per cent, while exports of plastics (including medical protection equipment) increased 54 per cent.
China’s imports bottomed out in May, contracting by 16.7 per cent from a year earlier. The decline was due in part to sharply lower oil prices, but also indicated continued weakness in the world’s second-largest economy.
China’s economic recovery was uneven for much of the year, with industrial sector rebounding strongly but consumer spending lagging behind.
While China’s industrial engine picked up speed as the year progressed, it took until August for retail sales to post positive growth, rising 0.5 per cent compared to a year earlier. Retail sales had fallen by 20.5 per cent in combined data for January and February, the first decline on record.
China’s relations with the US remain strained, which much speculation about how this will change when Joe Biden takes over from Donald Trump on January 20.
But one relationship that is set to remain strained into the new year is the one between Beijing and Canberra. The key trade relationship began to unravel in April when Australia led calls for an international inquiry into the origins of the coronavirus.
China has since placed tariffs and blocks on a growing list of imports from Australia, with no signs that tensions will ease soon.
Closer to home, China also introduced its so-called dual circulation strategy in 2020, as well as its 14th five-year plan.
The dual circulation plan places a greater focus on the domestic market, or internal circulation, and is China’s strategic approach to adapting to an increasingly unstable and hostile outside world.
It is expected to see China place less reliance on its export-oriented development strategy, or external circulation, without abandoning it altogether.
The 14th five-year plan, meanwhile, enshrines many of the policies pursued under the tightening grip of Xi Jinping over recent years, around economic self-sufficiency and stability, technological independence, military strength and poverty alleviation, and was developed alongside a longer-term blueprint for governance up to 2035.
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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.
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