China Leads the Way in Recovery

It has been a few months since we saw the first reports of economic recovery in China.

If we look at the GDP stats, China's significant down fall was first quarter of 2020, at the outbreak of Covid, which was compensated in the next two quarters.

Another indicator of recovery has been the decline in the jobless rate. During the worst of covid lockdown in the spring of 2020, between 70 to 80 million people were out of work throughout China, in all major sectors. This figure is now down to 20 million by the last quarter of 2020. Although not back to normal, the job market is rapidly recovering.

Exporting Opportunities on the rise again

Even with the continued pandemic situation in Europe and elsewhere, Chinese exports have remained strong in the last quarter of 2020 and the trend is expected to continue into this year. Global demand for goods such as clothing has reportedly recovered.

The recent EU-China deal has been agreed this month, and is expected to enhance cooperation and secure further growth. Early reports and analysis suggests the deal is a win for China. The EU-China is a done deal, however the same cannot be said about US-China relations. It is unclear at this stage if the incoming Biden administration will drive meaningful improvements and ease trade. In this context, China may not rely on the US for exporting as much as it used to, and may need to turn to domestic sources, which may result in driving the economy more towards services, digitalisation and infrastructure projects.

Domestic Outlook

With an eye on the expanding domestic market, internet services and e-commerce giants Tencent, Alibaba, Meituan and Taobao are all poised to compete for a stake.

Domestic consumption and retail sales were identified as main reasons driving the recovery.In particular, electronic goods and medical equipment have been in demand.

For instance the smartphone and tech giant Xiaomi (XIAOMI-W (1810.HK)) has gained in share price in the last quarter of 2020 and remains a popular stock despite recently making Trump's blacklist.

Within the ever so relevant medical field, pharmaceutical companies such as Sino Biopharmaceuticals (SINO BIOPHARM (1177.HK)) have benefited tremendously. Health related apps have become widely used in China – Ali Baba Health (ALI HEALTH (0241.HK)) for instance has more than doubled its share price from prior the Covid outbreak.

Indeed, growth by domestic demand was emphasized during the 2020 Fifth Plenum. The next five year plan includes building up domestic capabilities in technology, digitalisation and green energy sources because of China's announcement of Net zero emission economy by 2060.

The 2060 mark is a long way away, but Chinas EV revolution is already gaining track. The leading market players are mainstream manufacturers BYD and Geely, but start-up EV companies Nio and Li Auto have attracted attention. Worldwide electric cars leader Tesla is also well established in China with manufacturing facilities in Shanghai.