China 2021 Economic Report - H1

Executive Summary

• China achieved +2.3% of GDP growth in 2020, driven by the real estate sector (average two-year growth of +7.6%) and industrial output (average two-year growth of +6.8%). Nevertheless, preliminary data of Q2 2021 hints that the latter is losing steam.

• According to National Bureau of Statistics of China, 2020’s per capita real consumption decreased -6.0% in urban areas and -0.1% in rural areas. This figure hints to caution from urban residents due to long-term employment perspectives.

• After returning to pre-Covid levels in December 2020 (+5.2%), unemployment saw an increase over the first quarter of 2021 as it reached +5.4% in January, +5.5% in February and went down to +5.3% in March. As a comparison, in February 2020 the unemployment rate had risen to +6.2%. This issue remains of upmost concern for the Government, as it may jeopardize economic recovery and reverse successes on the poverty front. In particular, it appears that China struggles significantly improve job prospects for the country’s young and educated.

• Fiscal and monetary policy has focused on combatting the damage inflicted by COVID-19 containment measures. The People’s Bank of China has launched several rounds of reserve requirement ratio cuts and more than RMB 1.8 Trillion have been injected into the market through this measure. Moreover, the Chinese government also approved several batches of special purpose coronavirus-relief bonds, overall freeing more than RMB 3,8 Trillion in 2020 to support the economy. The total size of the stimulus is estimated by the Economist to be about 5% of GDP. A special attention has been set in avoiding to elevate already high debt levels which could potentially destabilize the economy.

• In 2020, FDI to China continued to rose for the fourth consecutive year, reaching USD 144.3 Bn (+4.5), the highest level since records began in 1983 according to the MOFCOM. Chinese foreign direct investment (outbound) in 2020 increased of +3.3% YOY, amounting to USD 132.9 Bn and non-financial direct investment amounted to USD 110.2 bn, down -0.4 % YOY.

• China registered growth in foreign trade in goods in 2020. The total volume in imports and exports of goods reached USD 4.97 Trillion, up by +1.9% YoY. Exports grew by +3.6% YoY to USD 2.77 Trillion and imports declined by -1.1% YoY to USD 2.1 Trillion. The trade surplus increased by +27.4% YoY to USD 0.57 Trillion.

• In 2021, China's foreign trade volume surged by +37% YoY to USD 485 bn in April. Exports rose by +32.3% YoY in April to USD 263.9 Bn. Imports also rose by +43.1% YoY in April to USD 221.1 bn, hitting a decade high.

• In 2020, when including precious metals, total bilateral trade amounted for CHF 32.9 bn (-9.7% YoY) and Switzerland had a goods trade deficit of CHF 217.4 million with China. When excluding gold, the total trade amounted for CHF 30.8 bn (+8.1% YoY) and the trade deficit reached CHF 1.4 bn. Exports without gold reached CHF 14.7 bn, up 10% YoY, while imports without gold totalled CHF 16.1 bn in 2020, up by +8.1% YoY.

• As of May 2021, Swiss exports to China (without gold) grew by +22% YoY, driven by chemicals & pharmaceuticals, precision instruments and watches. Imports from China to Switzerland increased by +14% when isolating precious metals, driven mainly by machines, textiles, vehicles, chemicals and pharmaceuticals and precision instruments.

• China is going through a demographic transition and the national census showed that the fertility rate dropped to 1.3. Though the consequence is not immediate, this point out to the future challenge of dealing with more social burden and reduced growth potential.