China’s stock market: will it remain a world-beater in 2021?

Despite its ruthless approach to international politics, China remains a top destination for investors.

Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.

China may have gone into the Covid-19 crisis first, but it is having the last laugh. Despite a tumultuous year, it is emerging virtually unscathed with economic growth likely to be world-beating next year. Anyone checking where their Christmas gift purchases came from will realise that more than ever were sourced from China. The country has become too big to fail.

Yet the year began with US President Donald Trump stepping up his trade war with Beijing, a policy that has intensified rather than weakened. Matters took an early turn for the worse when the Beijing regime was accused of playing down the seriousness of the Covid-19 outbreak, with dire consequences for most of Europe, the US and countries as far apart as Brazil and India. 

Companies in Europe and the US muttered darkly about spreading their supply chains more widely as goods and components were delayed by shutdowns in China.

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China incurred further opprobrium in the West with its stamping out of democratic opposition in Hong Kong, in clear breach of its agreement with the UK on the handover in 1997. In its far west, China has been accused of suppressing the Muslim Uighurs and imposing Chinese culture just as it did in Tibet. 

Its attitude to its Asian neighbours has been no more accommodating as it has pursued spurious claims to territorial waters in the region. 

Pragmatism has been combined with ruthlessness to lessen the impact. In Hong Kong, opposition leaders have been arrested to take the sting out of protests that were in any case restricted by coronavirus fears. With democratically elected members of the legislative assembly walking out in protest, opposition to Beijing will have a much smaller, if any, voice. 

This is important to the Chinese regime, as the former British colony is still a major conduit for trade and also for finance. Beijing can play a waiting game, letting the dust settle before turning the screw further.    

Bridges have been rebuilt with other Asian nations. When Trump’s isolationist policies created a leadership vacuum in the Pacific, China stepped in smartly.

Over the past four years, it has built the Regional Comprehensive Economic Partnership (RCEP), a trading bloc of 15 nations, mostly Asian and including powerhouses such as Japan and South Korea. 

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Accounting for about 30% of the global economy, it is the largest trading grouping in the world. The arrangement is very loose compared with the European Union, little more than an agreement not to impose tariffs on goods, but it is a first move towards Chinese domination of the region. 

It adds to the longer established belt and road initiative through which China has spent more than seven years building road, rail and sea links westward and into Africa. 

China, the largest country in the world with 1.4 billion citizens, has expanded strongly over the past 30 years as it caught up not only with the West, but also Japan and smaller but more prosperous Asian nations. 

GDP growth of more than 10% year after year powered it to become the second-largest economy in the world after the US. Such massive growth was always unsustainable, but even the 6.1% achieved in 2019 was better than all but a handful of nations, and there was every reason to think that the slowdown would be gradual to a steady and still highly respectable 5.5%. 

Despite the coronavirus scare that at one point saw 20 million people heavily locked down in Hubei province, China is coming out of 2020 in better shape than the US and Europe. The Organisation for Economic Cooperation and Development (OECD) forecasts that China will grow by a combined 9.9% over 2020 and 2021.  

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.