Economic Activity in China Has Normalized Faster than Expected: World Bank

Jakarta: Following a sharp decline in the first quarter of 2020, economic activity in China has normalized faster than expected, aided by an effective pandemic-control strategy, strong policy measures and buoyant exports. 
 
According to the the December 2020 edition of the World Bank’s China Economic Update, the recovery has been swift but uneven, with domestic demand recovering more slowly than production and consumption more slowly than investment. 
 
The report projects economic growth in China to slow sharply to 2 percent in 2020 before rebounding to 7.9 percent in 2021, as economic activity broadens to private investment and consumption, in response to improved consumer and business confidence and better labor market conditions.

"The global environment remains highly uncertain and this calls for an adaptive policy framework. A premature policy exit and excessive tightening could derail the recovery," said Martin Raiser, World Bank Country Director for China, in a press release on Wednesday.
 
"The withdrawal of fiscal support should proceed gradually, but the focus should shift from traditional infrastructure to more social spending and green investment," Raiser stated.
 
The report highlights how China’s reform agenda is intrinsically linked to its spatial transformation. While regional disparities in output, labor productivity, and income across provinces and between urban and rural areas in China have narrowed since the mid-2000s, this convergence was driven by a surge in investment in lagging regions. Mounting financial imbalances and debt, and diminishing returns make further investment-driven convergence unsustainable.
 
"To rebalance the economy from investment to more innovation- and services-driven growth, China will need to embrace the growth potential of its most developed and innovative metropolitan areas and city clusters," said Sebastian Eckardt, World Bank Lead Economist for China. 
 
"Such a shift will need to be accompanied by fiscal policies to ensure more equitable public service delivery and increased investment in human capital for people living outside urban areas and coastal provinces," he stated.
 
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