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Growth Risks facing Chinese Economy in 2022

2022 promises to be a complicated year for the Chinese economy with the virus variants, and a persistent property slump. Data from the first three quarters expect China’s full-year economic growth to exceed 8%.

According to analysts’ estimations, the Chinese economy will expand by 5.3% in 2022. The Chinese authorities could increase fiscal and monetary support for the next year after a relatively contained approach for most of 2021.

Two key political meetings will take place in December, namely the Communist Party Politburo and the Central Economic Work Conference. During these two events, it will be possible to have clues about the country’s next political moves.

According to Chang Shu of Bloomberg Economics, the government will target growth between 5 and 6%. The slowdown will depend on the balance China finds between supporting short-term growth and advancing long-term reforms.

According to Haibin Zhu of JPMorgan Chase & Co., the Chinese government will gradually downplay its focus on targeting GDP growth, favoring a policy fine-tuning phase, providing targeted support to weaker areas, rather than flooding the economy with stimuli.

As for the real estate market, this could mean some normalization of mortgage loans and lending to property developers. The likelihood of interest rate cuts next year is low according to Haibin Zhu’s analysis.

Hu Yifan of UBS Global Wealth Management says growth will slow to 5.4% in 2022 due to a weakening in exports and an increase in investments. The government could increase tax support for high-end industries, chip manufacturing, and smart infrastructure while continuing to help small businesses.

Raymond Yeung‘s (Australia & New Zealand Banking Group Ltd.) forecasts are more pessimistic. The Chinese economy could grow by 4.6% in 2022, mainly driven by household consumption which will contribute 45% of overall growth, and exports which will remain robust. Investments, on the other hand, may remain weak.

The PBOC (People’s Bank of China) could keep interest rates unchanged, focusing on managing credit expansion in specific areas, particularly for small businesses. Fiscal policy could shift its focus to applying tax cuts to small businesses, households, and green projects.

According to Citigroup’s Yu Xiangrong, the housing crisis is a major concern, with no investment growth forecast for next year.

For Louis Kuijs, Oxford Economics, in response to the downturn in growth, the authorities could ease macroeconomic policies between late 2021 and early 2022.

Source

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