Virtual courtesy call with Jiayi Zou, Vice Minister of Ministry of Finance of China. In clockwise direction starting from the top lefthand corner: Jiayi Zou, Toshinori Doi (AMRO Director), Chaipat Poonpatpibul (AMRO Lead Economist and Country Head for China), Hoe Ee Khor (AMRO Chief Economist)

SINGAPORE, November 16, 2020 – China’s economy has staged a strong recovery following its successful containment of the COVID-19 pandemic.  At the height of the pandemic, the Chinese Government took a series of decisive and forceful containment measures, including locking down the economy, where needed. This inevitably led to a massive disruption of businesses, production shutdowns, and job losses. However, the swift and effective containment of the pandemic allowed the authorities to reopen the domestic economy, while the comprehensive and targeted policy measures provided effective support to firms and businesses, and enabled a strong and broadening recovery. This is according to the preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO) following its virtual Annual Consultation Visit to China from October 19 to November 6, 2020.

The mission was led by AMRO Lead Economist, Dr. Chaipat Poonpatpibul. AMRO Director, Mr. Toshinori Doi, and Chief Economist, Dr. Hoe Ee Khor participated in the key policy meetings. The consultation focused on the effectiveness of the policy measures, and challenges in reviving the economy, supporting enterprises and workers; and safeguarding macroeconomic and financial stability. It also included discussions on strategies to enhance the quality and resilience of China’s growth and development in the longer term.

Economic outlook

“China’s economy is expected to grow by 2.0 percent in 2020, despite the disruptive impact of the COVID-19 pandemic on production, trade, and employment. The recovery has been very strong in the second half of 2020, and the momentum is expected to continue through 2021, with growth coming in at 8.7 percent for the year,” said Dr. Poonpatpibul.

China’s economic contraction was large but brief. Effective pandemic control within the country and swift policy response allowed a quick recovery from production-side disruptions, which enabled growth to turn around from -6.8 percent (y-o-y) in Q1, to 3.2 percent in Q2, and 4.9 percent in Q3. In recent months, there have been more signs of a pick-up in recovery, enabling smaller enterprises, lower-skilled and migrant workers, and rural households to move further away from adverse conditions.

Looking ahead, consumption and investment should continue to improve, aided by targeted policy measures. Exports, which have been remarkably resilient, should remain robust in tandem with the recovery in the global economy.

Policy responses to COVID-19

China’s authorities have taken effective measures to contain the COVID-19 pandemic, support growth, and mitigate the impact on micro and small enterprises (MSEs), vulnerable groups, and local governments.

Fiscal policies have played an increasingly proactive role in both pandemic control and economic recovery since the onset of the pandemic.  In particular, bigger budgets were allocated to supporting the healthcare and social security system. Government outlays on infrastructure investment were increased, with some key projects financed through special central government bonds and the issuance of more local government bonds. Tax and fee cuts as well as a reduction in social security contribution by employers provided significant support to enterprises and workers.

Monetary policy measures have helped ensure sufficient liquidity in the financial system. The support to micro and small enterprises (MSEs) has been innovative and significant, helping to cushion job losses. Financial policies centered around forbearance measures have allowed banks to continue to provide supportive financing and lower interest rates on loans for businesses and sectors that are more vulnerable.

Risks and vulnerabilities

Given the COVID-19 situation and serious global recession, the overall risks to growth and financial stability will likely remain elevated in the coming quarters.

If the worldwide pandemic situation escalates and leads to a prolonged global recession, China would face stiffer-than-expected headwinds from weak external demand. This could exert dampening effects on its domestic economic activities.

Elevated uncertainty related to US-China tensions over technology and trade could hamper China’s technological development over the next several years and dampen its growth potential. Attention should be paid to possible changes in the policy direction of the new US Administration.

Small banks face increasing credit risks, especially from MSE loans, which may lead to some of them facing a shortfall in capital. Interconnectedness in the financial system could create spillover effects should these banks encounter heightened difficulties.


Policymakers should ensure that the economic recovery continues to broaden while providing support to weaker enterprises and vulnerable groups.

It is important for the authorities to stand ready to deploy further policy support if the recovery falters either because of a recurrence of the pandemic in China or a downturn in the global economy as the pandemic continues to spread. At present, China still has moderate policy space to do so.

To avoid cliff effects, careful sequencing and timing for phasing out support measures are essential and this would necessarily hinge on changes in economic conditions and the pandemic situation. In particular, close coordination among policymakers across government agencies would be needed.

As bad loans could increase further, policymakers should strengthen the mechanism for the disposal of bad loans and strengthen the bank resolution system.  In addition, help should be provided to smaller banks that are facing capital shortfall to raise capital, which would also help reduce spillover risks.

The economic and financial crisis induced by the COVID-19 pandemic has highlighted the need for stronger efforts to boost economic resilience after the pandemic has passed. Key policies include committing to credible medium-term plans to keep local government debt in check, facilitating corporate deleveraging, strengthening the framework and mechanisms to support MSEs, and enhancing social safety nets for vulnerable workers and households.

China’s 14th Five-Year Plan (2021-2025) for National Economic and Social Development, as well as the Long-Range Objectives through 2035, provide important blueprints for social, economic, innovation, and green developments of China over the longer term.

The “Plan” includes the “Dual Circulation” strategy to further develop and transform the economy by leveraging on China’s domestic market as the mainstay, with domestic and international markets reinforcing each other. This strategy is expected to boost the country’s resilience and development.

Lastly, the mission team would like to express its deep appreciation to the China authorities and other participating organizations for their thoughtful comments and candid views. Due to the COVID-19 pandemic, all meetings for this year’s consultation were held virtually. AMRO appreciates the strong support and coordination for this arrangement very much.

About AMRO

The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute toward securing macroeconomic and financial stability of the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support the implementation of the regional financial arrangement, the Chiang Mai Initiative Multilateralisation (CMIM), and provide technical assistance to the members.