Last year, many countries in the world had their economy battered by the coronavirus pandemic. There was one notable exception in China, which was the only major economy to grow in 2020. On January 17th, China announced that its GDP rose 2.3% in the previous year, with a 6.5% year-over-year growth in the fourth quarter. China’s GDP hit 100 trillion yuan(about 15 trillion USD) in 2020.
First in First Out
As the first country to experience the outbreak, they also became the first country to reopen with the implementation of swift and strict controls. Chinese authorities shut down more than half the country in early 2020, and their economy contracted by 6.8% in the first quarter. However, they rebounded quickly in the quarters after, with their economic uptick mainly spurred by an increase in exports. Heightened demand for pandemic-related products fueled the growth, as well as demand for work-from-home office supplies.
At least in terms of the Covid pandemic, China seems to have been first-in-first-out, and investors have caught on to this recovery. The new year kicked off with the CSI 300 index (which tracks the value of 300 largest companies on the Shanghai and Shenzhen stock market) reaching levels not seen in over 10 years. Similarly, China’s Caixin Purchasing Manager’s Index, a measure of the country’s manufacturing index, reached an all-time high last November.
Despite this remarkable growth, a slower recovery in domestic spending continues to be a drag, with sales contracting 3.9% for the year. Nevertheless, Chinese consumers picked up their spending later in the year, with 2020’s Singles’ Day - an unofficial holiday and shopping season in China – leading to e-commerce giants Alibaba and JD.com racking up around $115 billion in sales across their platforms during the event. This helped set new e-commerce sales records and bolstered the country’s fourth-quarter retail sales to 4.6% growth over a year prior. In comparison, the E-commerce giant, Amazon, generated $10 Billion in global sales from their 2020 Prime Day.
The momentum from last year is likely to continue into 2021, with the IMF forecasting 7.9 percent growth for the year. Investors looking to participate in China’s growth should look to companies in industries that are leading the way for their economic boom. These include artificial intelligence, e-commerce, and logistics (contactless delivery such as drones, robots, etc.) The way China’s economy has recovered may also serve as a crystal ball for the recovery of Western economies, foreshadowing a potentially stronger than expected post-Covid recovery driven by pent-up demand and lockdown fatigue. However, the future is still uncertain, and some risks include a Covid strain mutation, an ineffective vaccine, and disrupted vaccine distributions. Investors should speak to their advisors to review their portfolio and to ensure that it is geographically diversified and well-positioned heading into 2021 and beyond.