China’s economy has recovered strongly from the downturn brought about by the COVID-19 pandemic. Successful containment of the pandemic, and timely policy measures providing strong support for businesses and vulnerable groups have been key. Despite some unevenness in the economic recovery, the growth momentum is now strong. Efforts at generating high-quality and inclusive growth are underway.

The top risk facing China is that recurring waves of COVID-19 infections could jeopardize the global economic recovery and weigh on China’s external-oriented sectors. This could make China’s recovery bumpier, and affect employment in some sectors of its economy. If economic and financial conditions weaken, some city and rural commercial banks could face loan portfolio deterioration. Highly-leveraged real estate developers and weaker state-owned enterprises could also face more pronounced financial strains.

Chinese authorities recognize the importance of continuing with targeted fiscal measures to sustain a balanced and inclusive recovery; and a monetary policy stance to ensure that liquidity is adequate and credit growth is supportive. They are also mindful that the phase-out of support policies should be done cautiously, and that there is room for policy support to be stepped up if warranted.

The report also takes a deep-dive for several important topics. These cover risks related to local government financing vehicles and some real estate developers’ rising debt; and China’s contributions and challenges in high-technology global value chains.