An extraordinary year is behind us, and the global community entered 2021 with the hope that both the public health and economic situation will normalize when the COVID-19 vaccines become widely available.
The global virus count is expected to drop sharply by the second half of this year. We expect over a third of the global population to have been vaccinated by the end of this year.
Our above-consensus forecast is for global growth of 6.3 percent this year, after an unprecedented contraction of 3.5 percent last year. We expect China to grow by 8.2 percent this year, up from 2.1 percent last year.
The Chinese economy stood out from the crowd last year as the only major economy that did not shrink. It was the first to overcome the crisis, benefiting from rigorous crisis management, the rapid containment of the virus and the ability to quickly retool its manufacturing base to meet surging global demand for work-from-home products and medical protective gear.
When the rest of the world went into lockdown, China effectively became a replacement supplier for many economies whose manufacturing was disrupted. As such, it contributed greatly to the much faster than expected recovery in global trade.
China will also be a key driver of the economic recovery this year: 23 percent of this year’s global economic growth in current dollar terms (that is, almost a quarter) will be attributable to the Chinese economy, which is significantly more than the 16 percent the US economy is expected to contribute to global growth this year, according to IMF forecasts.
Although China has been the largest contributor to global growth for some time, the Chinese economy is still smaller than the US economy when measured at market exchange rates. However, China’s exceptional economic performance during the pandemic has caused the gap to shrink significantly.
Despite an aging population and external challenges, we expect the Chinese economy to remain the biggest contributor to global growth for many years to come. With an expanding middle-income group, China’s total consumption market will increase by $8 trillion to $9 trillion in the next decade, the largest increase in the world, creating opportunities for many companies to grow.
Last year, China only used a relatively small amount of fiscal and monetary stimulus, in contrast to other major economies, and also in contrast to its own stimulus during the global financial crisis 12 years ago. China thus has more policy levers to pull to offset future economic shocks than other major economies.
In particular, given its relatively high yields amid zero or negative rates in other major economies, it has more leeway with regard to easing monetary policy and is thus better insulated from future adverse shocks than other major economies.
High yields also make China an attractive market for global investors. The further development and opening of the financial industry is crucial to realizing this potential and attracting capital and investors, especially those from abroad.
Well-functioning and competitive banks and open capital markets are a key prerequisite for economic growth. We have experienced this in Switzerland, the home country of UBS.
International rankings such as the WEF Global Competitiveness Report and IMD World Competitiveness Ranking have repeatedly listed Switzerland as one of the most competitive countries in the world, confirming that the exceptionally good access to financial services and capital markets has been an important factor contributing to the country’s success.
China has been driving innovation and technological progress, pursuing sustainable growth in light of its commitment of being carbon neutral by 2060, and adapting its economy to global trends and the changing needs of its population.
Connecting the economy’s demand for financing with local and international investors will be key on this path. There is still considerable potential, given that the market share of foreign banks has actually decreased over the past 10 years.
The further development of a diverse and sophisticated asset management industry is an important step toward attracting more institutional investors to the Chinese capital market.
Institutional investors are better able to protect the rights of shareholders and thus contribute to better corporate governance of listed companies. Moreover, increasing the participation of foreign institutional investors, such as pension funds and insurers, typically leads to a better allocation of income and growth, which benefits society as a whole.
Over time, this may also lead to reduced volatility in the A-share market and Chinese equities in general, and increase the attractiveness of Chinese equities as an asset class to global investors, thus enhancing stability－significant volatility has been a drawback for foreign long-only investors in Chinese equities.
Open markets also lead to more investment opportunities for both firms and individual investors. This way they can better diversify their assets internationally in a controlled and structured manner. The development of a functioning derivatives market is another priority for the completion of the Chinese financial market. Derivatives provide investors with the benefits of risk management.
To further internationalize the Chinese currency and develop a highly effective open capital market, it will also be necessary to address the concerns of, and protect the interests of, global and domestic investors and lenders.
It is encouraging to see regulators in China taking a positive attitude toward strengthening standards as well as enhancing enforcement and transparency, such as in cases of financial fraud involving listed companies and potential misconduct related to recent credit defaults.
As a large global bank and the world’s largest wealth manager, UBS is fully aligned with China’s strategy of opening up its financial services industry and capital markets.
The writer is an economist, professor and banker, and chairman of the board of UBS, a Swiss multinational investment bank and financial services firm with operations in over 50 countries and regions.
The views don’t necessarily reflect those of China Daily.