China Bests Economic Rivals Despite Worst Year Since Mao

This should come as a surprise to no one: when the final tally is complete, the global economy will have shrunk by just over 4% last year.

Yesterday China published its annual GDP figures revealing it is the exception to the 2020 rule.

China managed to eke-out 2.3% GDP growth last year – making it the only major economy to come out larger on the other side of 2020.

The Man With a Central Plan

Like most other major countries around the world, China was hit hard by early lockdowns and its economy shrunk by 6.5% in Q1.

Under President Xi Jinping, China was (by most accounts) able to stamp out the coronavirus with forceful lockdowns. For the remainder of the year, China was largely able to avoid the stop-and-start shutdowns that plagued much of the global economy.

With the backdrop of fewer cases than many developed nations, China’s government orchestrated a stimulative environment:

• China pumped large sums of debt into the system to prop-up its state-owned enterprises. China’s debt (public and private) to GDP ratio ballooned to 270% this year, up 30% in 2020 alone.
• While the U.S. Federal Reserve brought interest rates to record lows to spur domestic activity, China’s central bank held firm on higher interest rates, attracting foreign capital into the country.

The Net Result: Chinese factories were back on line by April, producing a record amount of medical equipment, personal computers, and industrial goods. Once the dust had settled, China had finished its highest-ever year for exports.

Deutsche Bank’s chief Asia-Pacific economist said, “We had a perfectly V-shaped recovery profile in China, whereas the U.S. looks more like a W.”

The Big Picture

Despite the relative outperformance, it was still the words It was still the worst year for the Chinese economy since Mao Zedong died in 1976.

What Else: In per-capita terms, China’s GDP surpassed $10,000 for the first time ever in 2020, a far cry behind the U.S.’s $65,000. But (see China’s population), the Centre for Economics and Business Research predicts China’s economy will surpass the U.S.’s by 2028