Economic Outlook 2021

by John Gong

The year 2020 was by all means a tumultuous one with the COVID-19 pandemic sweeping the world， already causing more than 80 million infections and 1.8 million deaths. Thanks to the resolute response of the government and the solidarity of the entire nation， China recovered from the catastrophe relatively fast. After both public health and the economic situations improved rapidly， life has pretty much returned to normal in China. China has developed contact tracing and quarantine mechanisms to quickly control mini-outbreaks as they occasionally pop up through imported cases.

The country recorded an unprecedented 6.8-percent GDP drop in the first quarter of 2020. But in the third quarter， its GDP saw an increase of nearly 5 percent， and that of the last quarter was projected to surpass 6 percent. By year-end， China would likely have eked out a 2-percent growth for the year as a whole， making it the only major economy in the industrialized world to achieve positive growth in 2020.

And what do Chinas economic prospects look like in 2021？ The conclusion of Chinas annual Central Economic Work Conference on December 18 brought some clues. The central government laid out its strategic goals for the new year at the annual meeting. The conference released a plan focused on eight tasks for the new year， the first two of which pointedly address strengthening strategic technological innovation and consolidating the security and stability of supply chains. Technology and innovation rising to top priorities over the usual economic goals represents a striking shift from previous plans.

In terms of economic policies， the document issued by the conference states that the central government will continue to adopt proactive fiscal policy and a steady monetary policy. The document also emphasizes， as expected， the importance of consumption and the need for demand-side reform alongside other policy objectives. The new and most exciting content regards an initiative to “strengthen anti-monopoly enforcement and prevent disorderly expansion of capital.” This clearly refers to the seemingly limitless expansion of several internet companies both in scale and in scope to the point of obstructing innovation by small and medium-sized companies and threatening the economy with systemic speculative financial risk.

For two decades， Chinas anti-monoply authorities have largely taken a handsoff approach to the countrys internet industry， leaving it bereft of regulatory oversight. The approach was based on an economics argument called “dynamic competition”which deemed the sector a Schumpeterian market sated with the “perennial gale of creative destruction” that the government should let run its course without intervention. But after many years， a few huge companies are clearly exerting market dominance in China， which raises the question of whether abuse of dominance in violation of Article 17 of the anti-monopoly law is happening.

In succinct terms， technological innovation and anti-monopoly policy appear to be new strategic items joining the usual menu of economic policies and other related social policies in 2021. Hopefully， they will make a difference in boosting Chinas GDP growth， if only by a bit. The new year will be better for sure， as vaccines begin deployment in North America and Europe. The 1918 Spanish Flu pandemic， which lasted for 18 months， may be the best point of reference， and that duration is only half a year away.

Of course the virus departure will be great news， but historically， the post-pandemic economic recovery was steep， at least in industrialized countries. A pandemic is like a natural disaster that destroys property and kills people. But in the wake of the catastrophe， economic recovery tends to be robust and vigorous. The United States experienced a solid decade of major economic expansion after the Spanish Flu.

In 2021， Chinas GDP is likely to continue to rise at a pace like in the fourth quarter of last year， if not more. This would put Chinas growth for this year at about 7 percent， likely overtaking Indias growth rate and putting China back at the top of the list of the fastest-growing major economies in the world.