2021 China: Toward lower but more sustainable growth

Over the near term, China’s growth recovery from the COVID-19 pandemic will extend into 2021, as lagging demand starts catching up with supply. We anticipate a post-COVID-19 growth spurt in 2021, but over the medium term, China’s growth will settle at a slower rate, consistent with the structural slowdown before the pandemic. Aggregate investment growth will continue to moderate, dragged down by a housing market cooldown, excess capacity, and high debt levels. Import-substitution policies will prompt investment growth in hi-tech industries. Subdued household income growth and yawning economic inequality will weigh on average household spending growth. Nonetheless, outsized growth is anticipated for consumer segments that serve the consumption upgrade demand of China’s wealthier households.