China Enters $10,000 Era for 2 Consecutive Years... 2.3% Growth (Comprehensive)

Only Major Country with Positive Growth in the World, Optimistic for 8% Growth This Year
Surpassing US Economy in 7 Years...Possibility of Changing 'G2' Position

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China's economic growth rate surged by 6.5% year-on-year in the fourth quarter of last year, resulting in an annual economic growth rate of 2.3%. Among major countries worldwide, China is the only country to have achieved positive growth.

China's National Bureau of Statistics announced on the 18th that the country's gross domestic product (GDP) in 2020 increased by 2.3% (provisional) compared to the previous year. Although this is the lowest level since 1990's 3.9%, the prevailing assessment is that China has made a remarkable recovery despite the adverse impact of the pandemic.

China's Per Capita GDP Enters the $10,000 Era for Two Consecutive Years

China, which was the first in the world to experience the COVID-19 pandemic, saw its economic growth rate plunge to minus 6.8% in the first quarter of last year.

However, it successfully achieved a 'V-shaped' rebound with 3.2% growth in the second quarter, followed by 4.9% in the third quarter and 6.5% in the fourth quarter, regaining stability. Before the official GDP announcement by Chinese authorities, overseas research institutions such as Barclays had forecasted that China's economy would grow between 5.7% and 6.5% in the fourth quarter.

The GDP size also surpassed 100 trillion yuan for the first time. Last year, China's GDP totaled 101.5986 trillion yuan (approximately 1,729 trillion Korean won), an increase of 2.5121 trillion yuan from the previous year's 99.0865 trillion yuan. Accordingly, China's per capita GDP exceeded $10,000 for two consecutive years.

Although China's economy showed positive growth, considering that the economic growth rate was 6.0% in 2019, it has not completely recovered from the COVID-19 shock. The reality is that the risk of infection remains, with winter resurgence and other factors.

The Power of Made in China

China's positive growth was driven by exports (manufacturing). Last year, China's exports amounted to $2.59065 trillion (approximately 2,861 trillion Korean won), an increase of 3.6% compared to the previous year. Imports were $2.0561 trillion, down 1.1% from the previous year. The trade surplus was $535.03 billion, the largest since 2015.

Since China's exports are concentrated in November and December, the positive economic growth was anticipated. In fact, the trade surplus during these two months accounted for 30% of the total, reaching $153.63 billion.

The Producer Price Index (PPI), a fundamental indicator of China's economy, also signaled positive growth. The PPI, which reflects prices of raw materials, intermediate goods, and product shipment prices, fell to minus 3.7% in May last year but showed a recovery trend every month, reaching minus 0.4% in December. The Consumer Price Index (CPI), an indicator of price stability, recorded an annual increase rate of 2.5%, exceeding the annual target of 3.5%.

Optimism for 8% Growth This Year

The outlook for China's economy this year is not bad. Due to the base effect, the dominant forecast is that the growth rate will reach the 8% range.

In fact, the International Monetary Fund (IMF) predicted an 8.2% economic growth rate for China in 2021.

This year is very important for China's leadership. It is the first year of the 14th Five-Year Plan (2021?2025) and the 100th anniversary of the founding of the Communist Party of China.

Moreover, this year's economic growth is crucial as it will influence the composition of China's next leadership next year. At the end of last year, the leadership prepared measures to revitalize domestic demand, such as the dual circulation policy, reflecting their determination to create a sustainable economic paradigm.

President Xi Jinping recently expressed confidence in economic growth, stating, "The world is undergoing changes unseen in a century, but time and circumstances are on our side."

The problem is COVID-19. Ahead of the Spring Festival (Chinese New Year), COVID-19 has resurged not only in the capital Beijing but also in neighboring Hebei Province and the northeastern region, causing the Chinese leadership to be on high alert. Since the resurgence negatively affects production and consumption, all-out efforts are being made for epidemic prevention.

[Image source=Yonhap News]

The U.S. Economy Within Sight of Being Surpassed

With China's economy showing positive growth, the gap in economic size with the United States is likely to narrow rapidly.

Professor Wei Miaojie of Peking University said in an interview with the Chinese state-run Global Times, "Assuming China's economy grows by 2% while the U.S. economy contracts by 3.6%, China's economic size would reach 70?71% of the U.S. economy. If the current trend continues, China could surpass the U.S. economy by 2028."

In fact, the U.S. economy is expected to contract last year. The IMF predicted in its October world economic outlook report that the U.S. economic growth rate would fall to minus 4.3%.

While China advanced amid the worst situation of the COVID-19 pandemic, the U.S. lagged behind, making it inevitable that the gap between the two countries would narrow.

Homi Karas, a researcher at the Brookings Institution in the U.S., predicted that if the current trend continues, China's GDP will surpass the U.S. GDP by 2028. This means the positions of the 'G2' will change in seven years.

Experts initially expected China to surpass the U.S. economy by 2030, but the timeline has been accelerated by two years due to COVID-19. During the global financial crisis in 2008, China's GDP was only about 30% of the U.S. GDP.