Economic analysis


Population 1400.1 million
GDP per capita 10,522 US$
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major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 6.6 6.1 1.6 7.5
Inflation (yearly average, %) 2.1 2.9 2.9 2.7
Budget balance (% GDP) -4.7 -6.3 -11.9 -11.8
Current account balance (% GDP) 0.2 1.0 1.3 0.7
Public debt (% GDP) 48.8 52.6 61.7 66.5

(e): Estimate (f): Forecast


  • Sovereign risk contained as public debt remains mainly domestic and denominated in local currency
  • Reduced risk of (private) external over-indebtedness thanks to the high level of foreign exchange reserves
  • Gradual climbing in global value-chains as part of China 2025
  • Dynamic services sector, led by e-commerce trends
  • Good level of infrastructure
  • Increasing presence in emerging and developing countries through the BRI


  • High corporate indebtedness set to impact growth potential
  • Dependency on imports of key technology components
  • Current account surplus expected to narrow and eventually turn into a deficit
  • Misallocation of capital to the SOE sector could erode long-term potential growth
  • Ambiguous government strategy on arbitrating between reform and growth
  • Ageing population, resulting in high public expenditure and higher labour costs
  • Environmental issues
  • Increasing tensions with India
  • Risks that the real estate bubble bursts

Risk assessment

Growth set to recover amid persisting downside pressures

China’s GDP is expected to rebound in 2021, but the recovery should remain uneven due to a weak outlook in domestic demand, despite an uptick in retail sales and investment. China is continuing to rebalance its economy towards a consumption‐oriented economy, in line with the “dual circulation” target in its 14th five‐year Plan. High corporate indebtedness (151% of GDP in 2019) and demographics remain concerns to the outlook in the longer‐term. Cyclical factors will also continue to weigh on the outlook. Trade tensions between the U.S. and China are unlikely to ease under Biden’s administration, who is aligned with Trump on a tougher stance towards China, and existing tariffs should continue to exert downside pressure on Chinese growth, shaving off 0.7% from the GDP. While the Phase One trade deal signed in January 2020 had cooled tensions, China is unlikely to meet the import target, which would become a threat to the deal. As of September 2020, China had only imported half (USD 65.9 billion) of the total products required (USD 124.9 billion) from the U.S. That said, exports were resilient in 2020 amid the pandemic, driven by a strong demand for medical supplies and benefited from a reduction in the other countries’ manufacturing capacities. This led the Purchase Managers Indexes (PMI) to rebound from their pandemic‐induced negative level into the expansion territory, and should extend into 2021, albeit at a slower pace, as trade partners would barely be emerging from the second wave of lockdown measures. The manufacturing sector, which accounts for 40% of GDP, is set to have positive spillovers on domestic demand as unemployment is gradually declining towards pre‐COVID‐19 levels, reaching 5.2% as of December 2020. Therefore, household demand (39% of GDP) is likely to recover gradually in 2021, albeit slowly. The stimulus package (4.5% of GDP) unveiled in May 2020, aimed at boosting investment, showed only little support for Chinese consumers. As such, the pandemic and the government’s response slowed down the shift into a consumption‐driven economy. Inflation is expected to drop slightly despite an uptick in demand post pandemic. Pork prices have been easing since September 2020 as African Swine Fever cases are on a downward trend. Private investment should recover in 2021, as business sentiment improves amid higher profits and earnings, after dropping by ‐29.5% year‐on‐year in the first half of 2020.


High debt levels exacerbated by the pandemic

The current account surplus is likely to narrow in 2021. Private consumption, which should gradually recover, would spur imports to expand at a faster pace than exports. The currency has been under pressure from trade tensions and the pandemic, but has remained broadly stable, as policymakers tightened capital controls and probably intervened in forex markets to prevent a steep depreciation. Despite the pandemic‐induced shock, China appeared to be spared from capital outflows due to the capital controls. China continues to receive a large amount of Foreign Direct Investment (FDI), but a rapidly ageing population and a dwindling trade surplus may impair its ability to generate savings that are significant enough to finance adequately the systemic build‐up in debt in the long‐term.

Debt levels, exacerbated by the pandemic, will remain extremely high (335% of GDP according to the IIF), with the bulk of it being owed by non‐financial corporations. These corporations, predominantly state‐owned, are struggling with high levels of debt and overcapacity. That said, state‐owned enterprises (SOE) are mostly owned by provinces, which are inclined to keep them alive in order to avoid popular discontent. Moreover, corporate debt is difficult to assess due to shadow banking. That said, the shadow banking industry might continue to shrink in 2021, as regulators are looking to introduce more restrictions on the sector. For instance, China’s Supreme Court cut the ceiling of the legal informal lending rate in August 2020, which is a move aimed at supporting the development of the private lending sector.


Rebalancing towards domestic oriented policies

On the domestic front, Beijing unveiled the 14th five‐year Plan with no particular GDP growth target, although it is seeking to increase GDP per capita (USD 10,276 in 2019) to a moderate high‐income economy (USD 12,536 according to the World Bank’s threshold) by 2035. The new five‐year plan will also focus on a dual circulation model, rebalancing the economy from a predominantly export‐led strategy over the last decades to a domestic driven economic activity that relies on domestic production, distribution and consumption. As such, this would help to reduce the dependence on foreign markets in times of external shocks. On the external front, despite Biden’s election, tensions between the U.S. and China are unlikely to ease much. Biden is expected to take up a tough stance against China, although possibly less confrontational than Trump’s, as he would seek to rely more on U.S. allies to confront China.


Last updated: March 2021


Cash payment is usually used for face-to-face domestic retail transactions. Due to tight capital controls imposed by the authority, an individual can only purchase up to USD 50,000 each year. Furthermore, when a Chinese company makes an international payment in a foreign currency, the company must submit a foreign currency payment application with the local bank, along with supporting documents like sales contracts and invoices. The whole process can be quite lengthy and it is possible that the bank will reject the transaction.

Commercial Acceptance Drafts (CAD) and Bank Acceptance Drafts (BAD) are both common methods of payment for Chinese companies. These are two negotiable instruments: whereas CAD is issued by companies to entrust the payer to unconditionally pay the specified amount to the beneficiary on the date, BAD is issued by the acceptance applicant, entrusting the acceptance bank to make unconditional payment of a certain amount of money to the payee or bearer on the designated date. In practice, BAD is regarded as safer and therefore more accepted than CAD.

Letter of credit and cheques are also used, but are less popular in China. The use of letters of credit is typically confined to big companies; and cheques are used infrequently by both individuals and companies.

SWIFT bank transfers are also among the most popular means of payment as they are rapid, secure, and supported by a developed banking network, both internationally and domestically.

Debt Collection

Amicable phase

The creditor makes phone calls and sends letters of collection to chase the debtor for payment. If debtor is responsive and acknowledges the debt, the two parties will negotiate payment plans to try to have payment settled. In the existence of a dispute, both parties need to come to an agreement or offer discount on debt amount.


Legal proceedings

The Chinese court system is complex. It is divided into multiple tribunals at different levels. The basic People’s Courts are at the lowest level with the County People’s Courts or Municipal People’s Courts. The basic People’s Courts have jurisdictions over most cases of first instance. Intermediate People’s Courts handle certain cases in first instance, such as major foreign-related cases, as well as appeal proceedings brought against decisions rendered by the basic People’s Courts. At the Higher level, the High People’s Courts decide on major cases in first instance. The Supreme People’s Court is at the highest level, which handles interpretation issues, and has jurisdiction over cases that have a major impact nationwide.


Fast-Track Procedure

If the debt is purely monetary, there are no other debt disputes between the creditor and the debtor, and the repayment order can be served on the debtor, the creditor can apply for a repayment order against debtor with the court. The debtor has 15 days to repay the debt after the order is issued; otherwise, he must submit a defence before the payment deadline. If debtor fails to do either, the creditor can apply for enforcement. However, if debtor’s written defence or objection is approved by the court and the ruling for terminating the debt payment order is issued, the debt payment order will be invalidated and the creditor can choose to pursue legal action. In practice, creditors do not usually use the fast-track procedure and will immediately initiate legal proceedings when the amicable phase fails.


Ordinary Procedure

Legal proceedings commence with the creditor lodging the case and submitting statement of claims with the court with corresponding jurisdiction. Once the case is accepted, court summons will be delivered to parties involved. Usually within one month, the first hearing will be arranged and the court will make a final attempt to reach a payment agreement between creditor and debtor via

mediation. If no agreement can be reached, the litigation continues with several rounds of hearings, before a judgement is rendered by the court.

In theory, a first instance ruling could be rendered within six months after the case’s acceptance, but in practice, proceedings can last longer as the complexity of the case increases (for example, when there is more than one creditor, or when a foreign party is involved). In some cases, the whole process can last to one to two years. Furthermore, appeal proceedings must be terminated within three months after appeal acceptance.

Enforcement of a Legal Decision

Domestic judgments, once obtained, can be executed by, for example, seizing the debtor’s bank accounts, property, or by a transfer of rights. The creditor can apply for enforcement with the People’s Court or with an enforcement officer.

For foreign judgments, the recognition and enforcement is based on the provisions of an international treaty concluded or acceded to by both China and the foreign country or under the principle of reciprocity. In practice, enforcing foreign arbitral awards is easier than enforcing foreign court decisions in China, because over 150 countries including China have signed and ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, June 10, 1958).

Another method of enforcement is the “Arrange­ment on Reciprocal Recognition and Enforcement of judgments in Civil and Commercial Matters” (REJA) between China and Hong Kong. There are similar arrangements between mainland China and Macao, as well as between mainland China and Taiwan. It provides a legal basis for Chinese courts to enforcement judgments from Hong Kong, Macao, and Taiwan. It allows creditors to use courts from Hong Kong, Macao, and Taiwan for cases in mainland China.

Insolvency Proceedings

Parties may agree debt restructuring arrangements without going to court. However, such arrangements must not jeopardize the interests of any other creditors – otherwise, they may subsequently be declared invalid in any court bankruptcy proceedings.

The 2007 Chinese enterprise bankruptcy law sets out three types of formal bankruptcy proceedings: bankruptcy, reorganization and reconciliation.


Restructuring proceedings

This can prevent a company with plentiful assets while experiencing cash flow difficulties from entering bankruptcy. Either debtor or creditor can apply with the court for Restructuring, which allows debtor to manage its properties under an administrator’s supervision. A restructuring plan should be approved by a majority of creditors in each voting class (secured, creditors, employees…) at creditor’s meetings, then sent to the court for approval within ten days from the date of adoption.

After the implementation of the restructuring plan, the administrator will supervise and submit report on debtor’s performance with the court. The administrator or debtor must file an application to the court for approval within ten days from the date of adoption.



This procedure allows the company to settle its liabilities with its creditor prior to the court declaration of debtor’s bankruptcy. The debtor directly submits a payment proposal to the court and upon receiving court’s approval on compromise payment proposal, the debtor will recover its properties and business from the administrators. The administrator will supervise debtor’s performance and report to the court. If the debtor fails to implement the compromise proposal, the court will terminate this procedure and declare debtor bankrupt as requested by the creditors.



The procedure has the purpose to liquidate an insolvent company and distribute its assets to its creditors. The bankruptcy request should be applied with the court and the request can be sent both in the name of debtor and a creditor. Once accepting the bankruptcy petition, the court will appoint an administrator from the liquidation committee and debtor will be notified within five days and is required to submit financial statement to court within 15 days. The administrator will verify the claims and distribute the assets to creditors. After the final distribution is completed, the court will receive administrator’s report and decide whether to conclude the proceedings within 15 days.


Special provisions regarding enterprise bankruptcy proceedings during the 2020 COVID-19 pandemic:
  • In the event of creditors applying for a company’s bankruptcy proceedings due to debtor’s debt payment default as a result of the pandemic or pandemic prevention measures, the people’s court should endeavour to prevent debtor’s bankruptcy by actively facilitating debt negotiation between debtor and creditor with measures such as payment instalments, extension of credit terms, revising the contract prices.
  • The court should distinguish the companies under financial distress mainly due to COVID-19 from the ones already suffering from financial difficulties prior to the pandemic. For the former, the bankruptcy proceeding shall be prevented, while for the latter, the court shall let them go bankrupt.