Despite being the frontrunner in the COVI-19 vaccine race, China will struggle to win the trust among fellow advanced countries, stated the Economic Intelligence Unit (EIU) in its latest report titled Asia in 2021.
The report, while delving on China stated that a strong headline recovery in GDP growth in 2021 will obscure some of the challenges faced by China’s economy, even as it has successfully brought Covid-19 under control.
Sequential economic momentum will, in fact, be weak. This will reflect the lingering impact of the pandemic on jobs and incomes; a tightening bias in monetary and fiscal policy; and the effects of geopolitical strains on investor confidence, it said.
“We expect China to be among the first countries to begin large-scale distribution of a coronavirus (Covid-19) vaccine in 2021. Besides the benefits for its own population, China will aim to use the development of a vaccine to restore its international reputation, which has been battered by its status as the origin of Covid-19. In particular, China will hope global distribution of its vaccine can shore up its ties in the developing world, where it and Western countries, led by the US, will increasingly vie for influence,” said the report.
EIU stated that given the logistical challenges of vaccine distribution, China will be at risk of overpromising and under delivering. It could also struggle to build global trust in its vaccine, given a mixed domestic safety record.
The report also anticipated a property price slump looming in China’s third- and fourth tier cities. It said that a tightening monetary policy and a new risk-rating system for property firms will cause tremors in the property market in 2021.
“As the Chinese and world economies normalise, monetary policy in China will have a tightening bias this year. Rising market interest rates will increase house-financing costs for investors and dampen market speculation.”
“Furthermore, pressure on major property developers to cap their debt levels has grown, following the issuance of new risk regulations in August 2020. As evidenced by strains on Evergrande, China’s largest developer, this will lead to discounted selling of housing stock or a retreat from land purchasing to avoid cash-flow issues,” it said.