China’s GDP increased by 8.1% in 2021, but growth is slowing
The growth figure for 2021 is roughly in line with the expectations many economists have set. And it surpasses the Chinese government’s goal last year that the economy should grow by at least 6%.
But GDP increased by only 4% in the last quarter of the year compared to the year before, according to government figures published on Monday, the lowest pace in a year and a half. The world’s second largest economy may struggle to grow much faster than that through 2022, and China’s central bank on Monday cut a key interest rate for the first time since April 2020 in an attempt to increase activity.
“As everyone has seen, domestic growth is under pressure,”[ads1]; Ning Jizhe, head of the National Bureau of Statistics, told a news conference in Beijing on Monday.
Growth in the fourth quarter was strengthened by industrial production, which rose 4.3% in December from the previous year – accelerated from November’s growth of 3.8%.
This was partly due to the continued strength of exports. Shipments from China beat forecasts and jumped 21% in December, bringing the value of China’s exports for the year to almost $ 3.4 trillion.
Real estate investments and new housing projects that have started construction also declined.
While the last quarter was “better than expected,” according to Larry Hu, head of China’s economy for the Macquarie Group, the economy is facing “more headwinds” this year, especially from Omicron and the real estate sector.
“Downward pressure on growth will continue into 2022,” wrote Louis Kuijs, head of Asian economics at Oxford Economics. in a research report on Monday. While he expects real estate activity to eventually begin to recover in the second half of the year, Kuijs also suspects that China is unlikely to relax its zero-tolerance approach to Covid until late in the year.
“As a result, we estimate disappointing consumption growth this year, especially” in the first half of 2022, Kuijs added.
A troubled real estate sector
China has struggled with a number of issues in recent times, including riots in the real estate sector.
Monday’s statistics showed that real estate investment grew by 4.4% last year. December, however, marked a significant decline: Investment plunged 13.2% in that month alone, according to an estimate by Chaoping Zhu, chief strategist for JP Morgan Asset Management.
And the amount of floor space covered by newly started housing projects plummeted more than 11% in 2021 from the previous year, public data showed.
“We expect further weakness [of the housing sector] in the coming quarters amid tight funding constraints for developers, “said Julian Evans-Pritchard, senior China economist for Capital Economics, in a Monday note.
China’s Zero-Covid policy will persist
Beijing’s unwavering insistence on eradicating every trace of the coronavirus, meanwhile, faces a huge test as authorities struggle with stubborn outbreaks and lock large sections of the population to keep them indoors.
Economists have warned that China’s zero-Covid approach to curbing the virus could pose serious problems for the economy in 2022. Goldman Sachs, for example, reduced its estimate of Chinese economic growth in 2022 to 4.3% from 4.8%, slightly over half of last year’s figures. They expect consumption to be hit hardest as a result of the strict Covid curbs.
December’s weak retail sales figures already shows evidence of how disruptive the coronavirus is in China.
“The resurgence of regional outbreaks and shutdowns, as well as supply bottlenecks in the automotive industry, weighed heavily on consumption,” said Zhu of JP Morgan Asset Management.
Now the threat posed by Omicron to factories and supply chains is exacerbating the problem.
Shiploads of ships in Chinese ports have worsened recently as several cities implement strict Covid restrictions due to the eruptions. In some places, the test guidelines are also being tightened ahead of the Chinese New Year holiday, which starts on 31 January.
The Shekou terminal in Shenzhen, for example, has begun restricting truck drivers taking in loaded containers. As of Friday, truckers can only enter the terminal if they have orders for export-bound containers on vessels arriving within three days, according to a recent statement from the operator.
More relief is expected
However, these economic challenges probably mean that the Chinese government will have to take more drastic steps to keep things in order.
But Zhu from JP Morgan Asset Management pointed out that these measures do not seem to have been enough yet. Bank lending to the private sector, for example, has not yet picked up again.
“This indicates that business confidence has not been restored,” he wrote. “Therefore, further easing of policy over a longer time horizon is crucial.”
Zhu expects the central bank to make further cuts in lending rates in the coming months. China may also allow local governments to issue more special bonds in 2022. Such bonds mainly fund infrastructure projects, which can help stimulate investment and create more jobs.
“With this policy in mind, China’s growth prospects may stabilize, and 5% GDP growth may be achievable by 2022,” Zhu said.
