China's economy is "humming" again

China's economy is running at full speed again, with industry in particular "humming", while the retail sector is increasingly making up for its losses from the spring. This is shown by the latest figures for industrial production (7% y/y) and retail sales (5% y/y) from November. At the same time, sentiment readings from the industrial and service sectors have almost universally climbed to multi-year highs. The momentum of the Corona recovery has thus continued unabated in the closing quarter of the crisis year 2020. Economic growth is currently expected to return to pre-Corona levels, and we expect a growth rate of around six percent in the current fourth quarter. In 2020 as a whole, China is one of the very few economies to achieve positive economic growth at all.
It borders on bitter irony that the country of origin of the pandemic has become one of the winners of the crisis. China's export economy in particular is benefiting - despite the global recession - from the high global demand for industrially manufactured goods. The country produces what is particularly in demand during the crisis: medical protective equipment, office furniture, electronic equipment for work and leisure. But home improvement supplies are also selling like hot cakes, because many consumers, especially in the industrialized countries, are now spending their money on investments in "their own four walls" instead of on vacations, visits to restaurants or concerts. It is therefore hardly surprising that China has seen strong sales growth, particularly in North America and Europe, and has been able to significantly expand its market share in recent months.
China seems to have been able to avoid a second wave of infection thanks to its rigorous "zero cases" policy. Certainly, the surveillance methods used by the Chinese leadership are more than questionable from a Western perspective. However, they have succeeded in restoring the Chinese consumer mood and significantly strengthening domestic demand. Many service providers are currently benefiting from strong catch-up effects. In addition, government investment measures continue to stabilize the domestic economy.
The current export boom remains a special boom. It will come to an end when strong catch-up effects in the consumption of services occur worldwide with an increasing number of Corona vaccinations. The isolation from the outside world that China is using to protect itself from "imported" infections may also cause economic damage in the long run. Finally, there is Beijing's goal, recently formulated under the catchphrase "dual circulation," of making itself less dependent on the global economy, which could lead to productivity losses in the meantime. So there are numerous downside risks to the medium-term outlook.

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