As China shows solid signs of a recovery, we raise our 2021 growth forecast to 8.5%  (from 7.5%). While we see many positives for the world’s second-largest economy, it won’t be all plain sailing; so, as a guide to next year, we highlight five key themes:

Private consumption to gradually catch up Households have been slow to spend this year due to the double whammy of falling incomes and increased caution amid COVID-19. Precautionary savings stayed high. However, as the recovery picks up, employment and income growth should improve gradually. We expect this to bolster consumption, particularly in services and discretionary purchases. Retail sales are likely to reach roughly double-digit growth in 2021.

Export strength is set to continue The roll out of vaccines will likely reduce global demand for pandemic-related exports, but we also expect it to lead to a rebound in global consumer spending, supporting Chinese exports. Meanwhile, US-China relations should be less volatile even though each side will probably not change its stance significantly, while a stronger RMB is still manageable for firms. Exports should grow 7.9% y-o-y in 2021.