China’s economy grew 8% in 2021, but property and virus threats loom: poll
This file photo taken on December 16, 2021 shows a man waiting to cross a road in Beijing’s central business district. China’s economy grew at its fastest pace for 10 years in 2021, according to an AFP analyst poll, but its strong recovery from the Covid-19 pandemic is threatened by Omicron and a slowdown in the economy. real estate sector. -AFP photo
China’s economy grew at its fastest pace for 10 years in 2021, according to an AFP analyst poll, but its strong recovery from the Covid-19 pandemic is threatened by Omicron and a slowdown in the economy. real estate sector.
The 8% growth would be well above the government’s target of more than 6%, and comes after a strong start to the year as a ‘zero-Covid’ policy has enabled the country to lead the global economic recovery.
China’s exports jumped nearly 30% last year on strong global demand as countries reopened from pandemic lockdowns, boosting its faltering economy.
But the country’s recovery in the second half of 2021 has been hampered by a series of epidemics – with authorities reimposing strict containment measures – as well as power outages caused by an emissions reduction campaign, supply chain problems and soaring energy costs.
While forecasts point to good annual growth – compared to 2.3% in 2020 – these problems have slowed down factory activity and led to the closure of businesses.
They have been compounded by a debt crackdown in the real estate sector, which accounts for a large part of the economy.
“The key factors (…) were the impact of power cuts, the slowdown in the residential construction sector and the moderation in retail sales,” said Rajiv Biswas, chief economist for the Asia region. Pacific at IHS Markit.
Analysts reported growth of just 3.5% year-on-year for the fourth quarter, compared to 4.9% the previous three months and 7.9% from April to June.
And headwinds from the slowdown in the construction sector, as well as the impact of Covid measures on consumer spending, will likely act as a “significant drag” on growth this year, Biswas added.
Beijing is on high alert as it prepares to host the Winter Olympics next month, with its zero Covid policy fueling lockdowns, border restrictions and lengthy quarantines.
“The current resurgence of the coronavirus poses significant downside risks to China’s economic recovery…under the government’s zero-tolerance approach,” said ANZ Research’s chief economist for the Great Britain. China, Raymond Yeung.
Yeung noted that Ningbo Port, the world’s third-busiest, was facing disruptions as cases led to truck entry restrictions, suspension of container cargo operations and roadblocks.
“These delays and backlogs could exacerbate shipping cost inflation and put pressure on export volumes,” he told AFP.
Another major port city – Tianjin – was hit by an Omicron cluster in January, the first time the virus strain was found in the community in China.
Analysts expect China will not ease its policy before the end of the Games.
Stay-at-home orders in the industrial heartland of Xi’an likely also disrupted manufacturing activities, Citibank said, as the city of 13 million was placed under a severe lockdown in December.
Uncertainties surrounding the real estate sector have also accelerated the cooling of fixed asset investment, DBS Bank economists said, adding that “tension will persist in the face of rising financial strains.”
Already, two-thirds of the top 30 real estate companies by sales have crossed one of “three red lines” set by regulators, DBS analysts Nathan Chow and Eugene Leow said in a recent report, referring to different debt ratios aimed at reducing leverage.
The crackdown that began in late 2020 dealt a heavy blow as developers – primarily Evergrande – plunged into liquidity crunches, raising concerns among investors and homebuyers.
“Reports of increased developer liquidity issues and construction or delivery delays will only further undermine confidence,” DBS analysts said.
This year, authorities hit some of the country’s largest companies with new restrictions and regulations, targeting concerns such as national security and allegations of monopolistic behavior.
But Macquarie economists expect authorities to return to “supporting growth” this year, with some signs that shifting priorities will reduce pressure on the property sector.
“It doesn’t mean regulation has ended, but it does mean the peak of regulation, the peak of property crunch and the peak of decarbonization are behind us,” said economists Larry Hu and Xinyu Ji.
Gene Ma, head of China research at the Institute of International Finance, said: “We expect further monetary easing and greater fiscal expansion this year.”