This Economic Survey was prepared by Margit Molnar under the supervision of Patrick Lenain. Damien Azzopardi provided research assistance. Karimatou Diallo, Stephanie Henry and Ilona Janus provided editorial support. The Survey benefitted from contributions by Janos Ferencz and Masashi Hamano. The thematic chapter builds to a large extent on the new OECD Product Market Regulation indicators, which were produced in the Policy Studies Branch of the OECD Economics Department by the team of Cristiana Vitale and this work was made possible by funding from the World Bank. The Survey benefitted from useful comments by Oliver Denk, Michele Cecchini, Bert Brys and Ruben Maximiano.

Growth is back to its pre-crisis trend trajectory, thanks to strong investment and exports. The pandemic appears to be under control in most of the country, but sporadic emergence of clusters continues.Revamping of the social security and fiscal revenue systems will be needed to achieve inclusive and sustainable growth.

While the Chinese economy was hit hard by the outbreak of COVID-19 in the first quarter of 2020, rigorous testing, tracing and isolation and strict non-sanitary measures helped stabilise the state of the pandemic. Owing to the prompt measures to control the outbreak and effective macroeconomic stimuli, activity sharply rebounded in the second quarter of 2020 and returned to its pre-COVID-19 trajectory (). While growth is slowing gradually in the medium term, it will likely remain strong and as recoveries of other countries are lagging, China’s contribution to world growth is large.

The impressive emergence of China’s economy is set to lose some momentum as the country catches up with more advanced economies and its rapid ageing also weighs on it. However, China can still reap the “reform dividend”, especially with measures to keep up the sustained growth of productivity. Reforms that enhance competition in product markets are among those that can potentially bring about significant productivity gains. China has been lowering the burden on start-ups and simplifying administrative procedures for a while already, achieving significant progress, though more procedures could go online and a one-stop shop is still to be implemented across the country. State ownership remains dominant in most network industries and there are many SOEs even in commercially-oriented industries such as retail or catering. SOEs enjoy implicit government guarantees and are the main beneficiaries of administrative monopolies, i.e. exclusive rights granted by regulations. In addition, they also benefit from various subsidies, sometimes leading to low-level, repetitious investment, excess capacity and waste of public money. A more level playing field would bring about efficiency-enhancing competition by private and foreign firms. Some network industries such as electricity and gas have recently accelerated their opening up and competition is developing in some segments.