China’s Economy to Recover Strongly Next Year, Foreign Financial Firms Say
Xu Yanyan
DATE:  Nov 27 2020
/ SOURCE:  Yicai
China’s Economy to Recover Strongly Next Year, Foreign Financial Firms Say China’s Economy to Recover Strongly Next Year, Foreign Financial Firms Say

(Yicai Global) Nov. 27 -- Leading foreign financial institutions are optimistic about China’s economy rebounding next year following the success of the country’s Covid-19 prevention measures, with some advising investors to increase their holdings of Chinese assets.

Yicai Global interviewed the chief China economists with these firms and looked through their outlook reports for next year. Most of them predicted the economy will grow strongly and the yuan will be stable next year.

China’s government is also expected to gradually end the loose policies introduced amid the pandemic and return to normal policies next year.

Deutsche Bank expects the country’s gross domestic product to jump 9.5 percent in 2021 and for the economy to fully return to its pre-coronavirus level, with household consumption as the main driving force.

Morgan Stanley forecast economic growth of 9 percent, while JPMorgan Chase, UBS Group, and Commerzbank predicted an 8.7 percent, 8.2 percent and 8 percent clip, respectively.

The Chinese economy will return to normal by the end of the fourth quarter, Zhu Haibin, chief China economist with JPMorgan Chase, told Yicai Global.

JPMorgan Chase has hiked its expectations based on the nation’s success in containing the coronavirus, enabling China’s economy to be the world’s first to recover, Zhu said, adding that moderate policy stimulus has also helped the economic bounce.

Goldman Sachs expects a more conservative growth rate of 7.5 percent because of concerns that the return to normal policies next year will be a drag on the economy, the firm’s chief China economist Shan Hui said.

But the investment bank is confident that the yuan will be stable, and that it will strengthen to 6.30 against the US dollar in 12 months’ time.

Yuan Appreciation

Standard Chartered Bank, Morgan Stanley, and Deutsche Bank also expect the yuan to firm up against the dollar next year, with Deutsche Bank’s chief economist Xiong Yi projecting a rate of 6.20 at the end of next year.

Commerzbank, however, predicts that the yuan will weaken to 6.70 against the dollar by the end of this year and that it will average 6.83 next year.

Investors should buy more Chinese assets, such as stocks and bonds, and the yuan, said Zhu Haibin, chief China economist with JPMorgan Chase, based on positive expectations for the Chinese economy and the yuan exchange rate.

Stock investments could log the highest absolute returns since 2017 next year with a strong global economic recovery, said Liu Jinjin, chief China stock strategist at Goldman Sachs. He expects Chinese mainland and Hong Kong equities to grow by 16 percent on average in 2021. Liu said the return on investment in the mainland will be higher than in Hong Kong because of the strong yuan.

China will gradually reverse its policy easing as the economic recovery gains pace next year, all of the foreign financial institutions agreed.

The People’s Bank of China, the central bank, will return its focus to reining in growth in the leverage rate to stabilize the financial system, Xiong Yi told Yicai Global. Therefore, the PBOC will tighten monetary policy next year, such as slowing down social financing growth and raising policy interest rates.

The PBOC will twice hike rates on the medium-term lending facility in the first half of next year, with increases of 10 basis points each time, Xiong said, in order to head off inflation caused by faster global economic growth and soaring asset prices.

China will gradually tighten polices but in a steady way, Morgan Stanley predicted in its outlook report.

Editors: Tang Shihua, Tom Litting

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Keywords:   2021 Prediction,Economy Growth,Government Policy,Market Analysis,Financial Institutes