With a strong, consensus-beating rebound in the fourth quarter of 2020, China became the only major economy to register an expansion ( 2.3 per cent ) last year. Industrial production, investment and exports all recorded solid gains. But consumer spending remained the weak spot , with recovery complicated by the resurgence of coronavirus infections and increased public caution ahead of the Lunar New Year. This could ease pressure on the People’s Bank of China to normalise policy quickly. Yet, such a hiccup does not change the overall outlook of a consumption-driven recovery, and Beijing will scale back policy support this year. Apart from the impressive pace of recovery, China’s economic growth has become broader in base with a notable pickup in services activity (2.1 per cent) last year complementing the strong industrial sector growth (2.8 per cent) responsible for the initial V-shaped rebound. Investment continued to do the heavy lifting, with exports also playing a part – a boom in fourth-quarter shipments pushed China’s trade surplus to an all-time high . The strong economic momentum is confirmed by a further acceleration of industrial production growth to 7.3 per cent in December, the highest since March 2019. Manufacturing production continued to lead the recovery, with output of high-end machinery, equipment, electronics and medical products all registering higher monthly growth. Strong growth in manufacturing capital expenditure also underpinned fixed-asset investment, which grew by 2.9 per cent for the year after falling as much as 25 per cent monthly during the peak of the pandemic. Real estate investment stayed buoyant, supported by solid growth in house sales (11.5 per cent) and housing under construction (6.3 per cent). But this momentum will be hard to sustain under increasingly restrictive policies . Growth is likely to roll over for real estate and infrastructure investment as Beijing scales back policy support. Retail sales were disappointing again but not because of the usual suspects of restaurant and catering sales, which grew for a second time in the year. Goods sales were the culprit, although some pullback in spending on mobile phones, cosmetics and clothing was expected after the spike in sales around Singles’ Day in November. Consumption is still expected to recover and become the dominant economic driver this year, as the labour market continues to improve and discretionary savings fall. But the recent resurgence of Covid-19 cases may create a speed bump. Rising social restrictions will weigh on holiday spending. But with many migrant workers staying put for the Lunar New Year, work could resume quickly, limiting the output loss suffered in previous years. What will dominate the economic impact comes down to how the pandemic evolves, and the government and public responses to it. But whatever transpires, it is more likely to create a mere hiccup in economic recovery than a derailment. With the coronavirus situation complicating the short-term outlook, the central bank can afford to be slow to take its foot off the gas. This is particularly so with the appreciating yuan – up 5 per cent on a trade-weighted basis since July – already doing the tightening work for an economy in which inflation pressure is muted. To manage the surge in demand for cash over the holiday, China’s central bank will need to inject liquidity in the coming weeks, with additional medium-term lending facilities and reverse repurchasing agreements. A cut to the reserve requirement ratio – which would allow banks to lend more – cannot be ruled out, but could complicate policy signals and is therefore less likely. This year, expect few, if any, major changes to policy rates and banks’ reserve requirements. Beijing will normalise policy slowly and carefully so as to foster economic recovery while preserving financial stability. Aidan Yao is senior emerging Asia economist at AXA Investment Managers