Happy Year of the Ox!

Today China and a number of other Asian countries celebrate the Lunar New Year, also known as the Spring Festival.

In pre-pandemic years, the Lunar New Year has been an opportunity for individuals and families to travel and visit loved ones. Millions of Chinese people took as many as 3 billion trips in early 2019, representing the largest annual human migration in history.

As you might imagine, things look a little different in February 2021, more than 12 months into the global pandemic. Although China has mostly contained the virus, travel is largely being discouraged. Officials expect only 1.2 billion trips to be made this year by plane, train and automobile.

That’s bad for families, obviously, but good for Chinese factories and exporters, some of which are offering bonuses to workers who put in the hours over the holiday. New orders continue to be red hot following a record year for exports, proving again that China remains as the world’s factory floor.

China’s Export Business Surged to New Highs in 2020

The Asian country ended 2020 with a record trade surplus of some $78 billion as demand for medical supplies, electronics and household goods surged. For the first time ever, China’s total global exports amounted to 14.3% of all global trade, according to Morgan Stanley. China is now the single most important trading partner to an incredible 64 countries, up from only five in 2001. For comparison’s sake, the U.S. is the top trading partner to 38 countries, down from 60 in 2001.

China recorded a record trade surplus at the end of 5020
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It’s for this reason and more that I’m extremely bullish on the country and believe it to be one of the most attractive regions to invest in going forward. I find it remarkable that China responded to the virus without having to break the bank with excessive stimulus. Whereas the U.S. is likely to spend some $10 trillion in monetary and fiscal policy by mid-2022, or about 50% of its GDP, China’s cumulative spending over the same period is estimated to be only 6% of GDP.

China Could Overtake the U.S. as the World’s Largest Economy Earlier Than Expected

Speaking of GDP, China was the only major economy to see economic growth in 2020. It expanded 2.3% while the U.S. economy shrank at about the same rate.

This divergence could mean that China’s economy may overtake that of the U.S. much earlier than expected—by as soon as 2026, according to one estimate.

CHina could overtake US as worlds largest economy sooner than expected
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Take a look at the chart above. The spread, or difference, between the size of the U.S. economy and Chinese economy has been tightening since the mid-2000s, but I believe we may see it tighten further to an all-time record low by the end of 2021 as economic growth in China continues to outperform.

S&P Global Ratings expects China’s GDP to expand 7% this year. I’ve come across even higher forecasts—some as high as 8% and 9%—so this seems a little conservative to me. As for the U.S., the Congressional Budget Office (CBO) is looking for a 5.6% annual growth rate in 2021, which, if accurate, would be the fastest rate since 1983.

China could overtake US as worlds largest economy sooner than expected
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