The gross domestic product (GDP) expanded 6.5% year-on-year in the fourth quarter, data from the National Bureau of Statistics showed on Monday, faster than the 6.1% forecast by economists in a Reuters poll, and followed 4.9% growth in the third quarter.

MARKET REACTION

Asian share markets pared early losses, and China's major benchmark indexes, the Shanghai index and the CSI300 index, were up 0.2% and 0.3%, respectively.

COMMENTARY:

TOMMY XIE, HEAD OF GREAT CHINA RESEARCH AT OCBC, SINGAPORE

"Very strong GDP growth, but domestic demand remains the weakest link. I guess this production-induced recovery will continue in the first quarter of 2021.

"Given lots of migrant workers will not travel back to hometown for CNY due to a resurgence of virus, it is actually good for production.

"For monetary policy, it is still pretty neutral. The PBOC is always a good trader to manage liquidity very well, so probably status quo for the first half. We are not going to see significant changes."

CARLOS CASANOVA, SENIOR ECONOMIST, ASIA AT UNION BANCAIRE PRIVEE, HONG KONG

"The supply-side part of the recovery narrative continues to be very strong. And with that I mean all of the industrial production, all of the external demand, with that super good performance on the export front that we saw last week translating into a rebound in industrial production in December, as well with the figures released this morning... But also on the domestic demand side of the equation... we did see this contributing positively also in Q4. So, together both factors led to this better outcome.

"I would say don't pay too much attention to the slight downturn from November numbers. What is important in terms of Q4 is that the contribution was positive together with a stronger contribution on the supply side as well. So, together those factors are what led to that better performance in Q4.

"We don't see an immediate reversal in conditions in Q1 either. Hence, I think it will exert upside pressure to our year-end forecast for 2021, of 8%. We are inclined to revise it upwards to 8.5% as a result... Although we do expect to see demand shift to the domestic front, the supply side will remain supportive, especially exports... (we) expect that industrial production should be able to remain stable around 7%."

BO ZHUANG, CHIEF CHINA ECONOMIST, TS LOMBARD, SINGAPORE

"Stronger than expected. I was expecting about 6% to 6.2%.... Exports have been really strong. I would say this is pretty much still a production-led recovery, and maybe you can even exaggerate to over-productive, over-heating, because of the COVID-19 pandemic and the lockdowns elsewhere.

"I think one major implication which we have already seen is the total credit growth slowdown... They definitely are turning around, moving from credit expansion to slower credit growth."

CHAOPING ZHU, GLOBAL MARKET STRATEGIST AT J.P. MORGAN ASSET MANAGEMENT, SHANGHAI

"Domestic economic activities are likely to improve in 2021, and further support from the global recovery is expected. Particularly, in the first quarter of 2021, we expect to see strong growth readings as the escalating pandemic control measures start to take effect.

"Due to the recent resurgence of new COVID-19 cases, governments at various levels are set to call on people to reduce mobility and gatherings during the Chinese New Year. The seasonality in Chinese export and industrial production during Chinese New Year might be broken, and unusually high growth rates in this quarter are likely to be seen.

"In terms of policy response, the central bank and fiscal authority might return to a more neutral stance when the economy is back on track. The PBOC may adopt a balanced and data-driven policy approach, emphasizing targeted funding supports to the real economy. However, when the property market is heating up in tier-one cities, the overall liquidity condition might be tightened to curb potential asset bubbles."

LOUIS KUIJS, HEAD OF ASIA ECONOMICS AT OXFORD ECONOMICS, HONG KONG          

"Reflecting concerns about premature policy tightening, we expect macro policy to be conducted flexibly this year. But, given recent trends and our solid global growth outlook, we expect China's policymakers to be able to tighten policy this year, consistent with the Central Economic Work Conference's commitment to contain leverage and financial risks.

"As the macro stance shifts, we see growth rotating towards consumption and corporate investment, away from infrastructure and real estate investment. And, sequential growth should soften. Nonetheless, the strong Q4 data calls for an upward revision of our 2021 growth forecast, from the current 8.1%.

"Following new government restrictions amid COVID-19 outbreaks in two provinces, reduced confidence and travel during the Chinese New Year holidays in February could hamper Q1 growth. But, at least for now, we think the risk of major economic impact is low, given China's track record of containing outbreaks."

WOEI CHEN HO, ECONOMIST, UOB, SINGAPORE

"We were looking at 6.1%. So, this a very robust set of numbers.

"(However) the recovery in retail sales is below expectation - so I think there is a lot more to catch up to bring it over 7% growth.

"The degree of recovery in private consumption will be the key thing that will be important this year, particularly as they have started to roll out vaccinations in December. Hopefully, this can help to bring out consumption demand in China.

"I think there will be an unwinding of fiscal measures...(and) they will not raise interest rates as yet, but they will do open market operations to keep liquidity flush and I think that's one way to bring down bond yields."

XING ZHAOPENG, ECONOMIST AT ANZ, SHANGHAI

"The higher-than-expected GDP number indicates that growth has stepped into the expansionary zone, although some sectors remain in recovery.

"Policy exiting will pose counter-cyclical pressures on 2021 growth. In fact, fiscal pullback has started because of no pre-approved local government bonds plan this year.

"Monetary policy will maintain necessary support to vulnerable sectors but in aggregate level, the liquidity injection will be back to normal."

LI WEI, SENIOR CHINA ECONOMIST AT STANDARD CHARTERED, SHANGHAI

"The data underlies a fast but uneven growth recovery, driven by increased exports of pandemic-related goods (medical equipment and electronics) and credit-fuelled auto and housing sales.

"However, the strong performance in recent months may be temporary, in our view, pandemic-related demand and credit growth expected to fade in 2021. As reflected in sluggish retail sales and slower-than-expected FAI growth, domestic household consumption of food, clothing, furniture and utilities remains below pre-pandemic levels, while the hospitality and transportation sectors continue to face capacity and travel restrictions."

BACKGROUND:

** China's economy has surprised many with the speed of its recovery from last year's coronavirus jolt, especially as policymakers have also had to navigate tense U.S.-China relations on trade and other fronts - GDP shrank 6.8% in Q1 for its first contraction since at least 1992 when official quarterly records started.

** Since then it has managed a remarkable rebound and at a quickening pace, thanks in part to stringent lockdown measures to contain the novel coronavirus, which first emerged in China in late 2019.

** Monday's Q4 data confirming growth of 2.3% for 2020 likely makes China the only major economy to have expanded last year. Government-led policy stimulus and local manufacturers stepping up production to supply goods to many countries crippled by the pandemic have also helped fire up momentum.

** China's strict virus curbs enabled it to largely contain the pandemic much quicker than most countries, although a recent outbreak in the northeast has driven up the daily number of cases to its highest in more than 10 months.

** While the initial economic rebound was led by a revival in factory activity and exports, with China's share of world trade rising thanks to shipments growing 3.6% last year, the Chinese consumer has also perked up over recent months in a boost to the 2021 outlook.

** China still faces many challenges, not least the tensions between Beijing and Washington and how they would play out under the new U.S. administration led by President-elect Joe Biden. As well, rising labour costs, a shrinking population and a recent spike in credit defaults add to risks for an economy that is still trying to reduce a mountain of debt.

** China's economic growth is expected to quicken to 8.4% in 2021 from 2.1% in 2020, before slowing to 5.5% in 2022, as the central bank is likely to keep interest rates steady, a Reuters poll showed.

** The People's Bank of China has rolled out a raft of measures since early 2020 to support the virus-hit economy, alongside targeted support for small firms and increased government spending on infrastructure.

(Reporting by Asian bureaus; Compiled & edited by Subhranshu Sahu)