Outlook and current trends

Outlook After a very strong recovery, we look for GDP grow th to moderate in 2021 with PMI sreaching a peak in Q1. Fading stimulus and a falling ‘catch-up’ effect mean fewer tailwinds to growth. Policy is heading for the exit but is in no rush. We believe the majority of the CNY appreciation is behind us as China slows and the US recovers. See the China section in Big Picture –Darkest before dawn, 1 December, for more on the outlook.

China today

Growth GDP growth increased to 6.5% in Q4, taking GDP back to the pre-coronavirus trend line. Economic indicators strengthened further in Q4 but the December PMI shows early signs of peaking. The recovery has been broad based, with both domestic demand and exports being robust. Copper prices accelerated in Q4, confirming a strong finish to 2020.

Inf lation CPI inflationis very low at 0.2% y/y. Excluding food, inflation stands at 0.0%.

Monetar y policy Rate shave been on hold for the past few quarters but de facto policy has tightened, with bond yields and money-market rates higher and CNY strengthening.

CNY The yuan has appreciated versus the USD and but less so on a trade-weighted basis.

Stock markets Chinese stocks have joined the global rally and continue to form one of the best performing markets.

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