China's Growth: Don't Mistake the Cyclical for the Structural -- Heard on the Street
By Nathaniel Taplin
By the terrible standards of 2020, China's 2.3% growth stands
out. That sets the country up well for a strong 2021, before some
familiar challenges reassert themselves.
Official full-year figures released Monday confirmed that
China's economy is firmly on the mend, having performed
impressively in the worst year for the global economy in recent
This is partly because China handled the pandemic well, after
initial missteps. But it was also lucky, both with its business
cycle and because its key export industry, electronics, happened to
uniquely benefit from pandemic-related demand in rich
Although it wasn't broadly appreciated at the time, China's
economy was already perking up in late 2019 due to the reviving
fortunes of two of its largest, most labor-intensive manufacturing
sectors: electronics and automobiles. Electronics in particular
were boosted first by rebounding global smartphone shipments and
then supercharged by demand for stay-at-home goods.
Profits in electronics and autos logged their strongest
performances last year since 2017, growing 15.7% and 7.2%,
respectively, in the first 11 months of the year compared with the
same period in 2019. In contrast, overall industrial profits were
The first half of 2021 seems certain to be strong as developed
countries struggle to vaccinate their populaces and China's own
moderately sized stimulus feeds through. However, as the rich world
starts spending more on services again, Chinese exports may flag.
Back at home, many of China's urban car markets are well
saturated--in part thanks to previous, generous government stimulus
programs--meaning the auto industry won't fully pick up the
By late 2021 more fundamental headwinds--including a declining
labor force, weakening productivity growth and rapidly rising
consumer indebtedness--might become more obvious again.
To be sure, China is making useful changes, such as raising the
retirement age, easing restrictions on population movements, and
making bankruptcy and intellectual property courts more
But because the state's share of total investment keeps creeping
upward, the cumulative effect of these changes will have to be
large indeed to maintain overall growth. And signs of progress can
be overstated. For example, rising bankruptcy numbers appear to
reflect difficult times for private businesses as much as increased
That means that if 2022 is a more normal year, full-year growth
might be just 5% or 6%, not the roughly 8% consensus for this year.
It is always tempting to extrapolate in straight lines,
particularly when Chinese economic power is so clearly in full
flood. But economies rarely move in straight lines for long--and
floods, by definition, don't last.
Write to Nathaniel Taplin at email@example.com
(END) Dow Jones Newswires
January 18, 2021 05:44 ET (10:44 GMT)
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