Only a few months prior, China was the world epicenter of Covid-19; now being the only G20 country with positive economic growth in 2020, as estimated by the International Monetary Fund. How did China achieve these results and what will it mean for China itself and the rest of the world?
In China, state-dominated heavy industries, such as steelmaking, are key to boost the economy; thus, a large part of the GDP gains stemmed from a massive government stimulus initiative. Moreover, input from domestic consumers is crucial to ensure sustained economic growth to revive from the supply and demand shocks the covid-19 crisis has brought.
The situation of global instability, enhanced by the pandemic, coupled with uncertainty about the future of US-China relations, has pushed the Chinese government to adopt a “dual circulation economy”: a long-term strategy to reduce the dependency from international trade in its economy and to strengthen the role of domestic consumption on GDP. Proposed by President Xi Jinping, this is likely to become a key component for the government’s Five-Year Plan (2021-2025) to sustain economic growth.
Does this mean China will isolate itself from the rest of the world? Certainly not. In the 1980s, China’s former leader Deng Xiaoping adopted the “reform and opening-up policy”, which continues to bring massive benefits to China, and it has no reason to cease playing a key role in the Chinese economy, as markets continue to become ever more integrated.
Rightfully so, Chinese economists encourage more foreign investment and-above all-to make sure that its resources are employed efficiently. Hence, innovation and the digital economy will become crucial aspects to guarantee the necessary supply-side structural reform. On the demand side, China needs to continue to increase its residents’ incomes and optimize income distribution among citizens, which was already a key focus of the current administration, as demonstrated by the growing per capita GDP in rural areas in the last years.
The combination of strong measures taken in time to contain the virus and a detailed look at the domestic economy will ensure China a fundamental role in the reconstruction of the post-pandemic world.