Collapse of the Chinese Economy: Why China Could Face Major Problems in 2022 | World | News
The bureau released the results of its review on January 17, noting a 4% increase in GDP in 2021. But the continued pandemic dampened its potential, as the rate had risen at its slowest pace in 18 months. The People’s Bank of China cut an instrumental lending rate as the economy failed to match the 6.5% growth at the same time in 2020, and several factors could hold it back again in 2022.
Zero Covid Policy
The Chinese government has zero tolerance for domestic Covid cases and has dramatic measures designed to torpedo transmission.
Continued lockdowns are not uncommon, with some cities forced to endure weeks of mandatory quarantine and testing.
The restrictions have proved game-changing for many of the country’s most successful businesses, as the measures strangle supply chains and the workability of workers.
In early 2022, China faces an influx of people during Lunar New Year and the Winter Olympics, forcing officials to crush at-risk regions.
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The Winter Olympics
The Winter Olympics, scheduled for February 4 this year, has led Chinese authorities to crack down on areas near the host city of Beijing.
The roughly 14 million residents of Tianjin, 100 km from the city, are currently living under compulsory testing.
Tighter measures ahead of the games could end up straining the economy even more, as the competition itself could lead to diminishing returns.
While hosting the Olympics would traditionally provide a valuable financial boost to a nation, several participants are considering a boycott.
Activists are calling on competitors to stand down in protest at China’s human rights record, including the oppression of pro-democracy protesters in Hong Kong and abuses against Uyghur Muslims.
No country has yet committed to a full boycott, but the US, UK, Australia and Canada have withdrawn their diplomatic presence, saying their officials will not attend ceremonies or events.
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The real estate sector
China’s vast economy is partly supported by a strong real estate sector that accounts for around 30% of its total output.
As with the rest of the world, the pandemic has also reduced this, with the factors responsible still in effect at the start of 2022.
The Chinese have accumulated more debt, which has led to lower consumption, a slowdown in real estate and slower growth.
A political adviser told the Financial Times they were “all connected”, leading to anxious conversations behind closed doors.
Local ministers have expressed – both publicly and privately – that they will struggle to make ends meet if the problems persist.
In recent years, China has had to deal with the fallout from its decades-long one-child policy.
Although the government purged its remaining one-child limits in 2015, birth rates have not recovered.
From 2011 to 2020, census data showed stagnant population growth, with the lowest rates in decades.
In 2021, it fell to 12 million, the lowest since the country grappled with the fallout from the Great Chinese Famine of 1959 to 1961.
In response, authorities relaxed the rules again last year, introducing a three-child limit in July.
Stagnant demographics have a ripple effect on the economy as they leave businesses with a shrinking pool of workers.