To boost 2020’s GDP, Beijing sharply increased all the things it has been trying to rein in

CHINA FINANCIAL - Report 18 Jan 2021 by Michael Pettis

Special points to highlight in this issue:
• Contrary to the triumphalist reading of the press, China’s 2020 GDP growth data were very problematic. While we all focus on the headline growth number, it is important to recognize that the Chinese economy in almost every important structural way has done the opposite of what Beijing has wanted it to do.
• 2.3 percent GDP growth came on the back of a significant contraction in consumption and business investment. It was only the 2.9 percent increase in fixed-asset investment and, above all, the 7.0 percent increase in property development, made possible by a 25-percentage-point increase in the debt-to-GDP ratio, that allowed Beijing to achieve the politically necessary growth targets.
• By mid 2020 nearly every analyst was predicting negative (or close to zero) GDP growth rates for China, while I predicted 2-3 percent GDP growth. Today, the IMF is predicting 7.9 percent GDP growth for 2021, and nearly every other analysts expects much higher growth rates. Using the same understanding of China’s growth model and its political imperatives, I expect GDP growth to come in instead at 6-7 percent, driven mostly by consumption rather than investment.

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