chinese economy – Bizchina Update http://bizchina-update.com/ Sun, 27 Mar 2022 00:44:09 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://bizchina-update.com/wp-content/uploads/2021/10/icon-120x120.jpg chinese economy – Bizchina Update http://bizchina-update.com/ 32 32 China’s economy starts the year faltering https://bizchina-update.com/chinas-economy-starts-the-year-faltering/ Sun, 30 Jan 2022 08:00:00 +0000 https://bizchina-update.com/chinas-economy-starts-the-year-faltering/ BY JONATHAN CHENG | UPDATED JANUARY 30, 2022 12:54 AM EST Manufacturing and services sector surveys show pullback in January as latest Covid-19 outbreaks hit domestic demand China’s economy started the year on an uncertain footing as Covid-19 outbreaks disrupted factory activity and consumer spending, according to a trio of manufacturing and service sector surveys. […]]]>

BY JONATHAN CHENG | UPDATED JANUARY 30, 2022 12:54 AM EST

Manufacturing and services sector surveys show pullback in January as latest Covid-19 outbreaks hit domestic demand

China’s economy started the year on an uncertain footing as Covid-19 outbreaks disrupted factory activity and consumer spending, according to a trio of manufacturing and service sector surveys. published on Sunday.

Two gauges of China’s manufacturing activity – one official and one private – each retreated in January, while a third measure, of the country’s service sector, shed light on the heavy toll that the latest spike in coronavirus infections coronavirus has inflicted on domestic demand.

China’s official manufacturing purchasing managers’ index fell to 50.1 in January, the National Bureau of Statistics said, from 50.3 in December and just above the 50 mark that separates the expansion of contraction activity.

The result was in line with the median forecast of economists polled by The Wall Street Journal and marked the third month in a row that the measure has been in expansionary territory.

However, the sub-index measuring total new orders contracted further, falling to 49.3 in January, while new export orders improved to 48.4 in January, still in contraction territory. . Factory output in January weakened to 50.9 and likely would have been even weaker had it not been for an acceleration in consumer goods production ahead of the Lunar New Year holiday which begins on February 1, the statistics office said. .

Meanwhile, the Caixin China manufacturing PMI, a private gauge that’s more focused on smaller private companies than the official manufacturing index – which is weighted more towards large state-owned companies – fell to 49.1 in January, its highest. low level since February 2020, at the peak of the initial Covid-19 outbreak in China.

The sharp decline in Caixin’s manufacturing PMI, from a reading of 50.9 in December, came as the production and total new orders sub-indexes fell to their lowest levels since August, said Caixin.

Overseas demand also contracted at a faster pace than usual as the rapid spread of the Omicron variant of the coronavirus dampened global consumer sentiment.

Weak demand prompted manufacturers to slow their pace of hiring in January to cut costs, the Caixin employment sub-index showed.

“This year, policymakers should focus on stability,” Wang Zhe, an economist at Caixin Insight Group, said in a press release accompanying the data release on Sunday.

Separate data on China’s services sector, also released by China’s statistics bureau on Sunday, showed renewed weakness in a part of the economy that has lagged the broader pandemic recovery for nearly two years.

While Chinese leaders have stressed the importance of orienting the Chinese economy more towards domestic consumption, this effort has repeatedly been hampered by new Covid outbreaks and the government’s strict measures to contain them.

China’s official non-manufacturing PMI, which includes both services and construction activity, fell to 51.1 in January from 52.7 in December, the statistics bureau said on Sunday.

The sub-index measuring services activity fell to 50.3 in January, the lowest level in five months, from 52.0 in December, dragged down by coronavirus outbreaks across the country.

Sub-indices tracking sectors of the economy requiring close human contact, including hospitality and consumer services, fell below 45, reflecting lower consumer willingness to spend, Zhao Qinghe said, Senior Statistician at the Chinese Bureau of Statistics.

The sub-index measuring construction activity also weakened to 55.4 in January, from 56.3 the previous month, as weather conditions and the return trips of construction workers for the New Year’s Eve festival Lunar year have taken their toll, the statistics office said.

Economic data releases this year give a first glimpse of the health of the world’s second-largest economy, which quickly lost momentum in the final months of 2021.

For the whole of last year, China recorded an expansion of gross domestic product of 8.1% compared to the previous year, but the growth profile was unbalanced. In the third and fourth quarters, year-over-year GDP growth was 4.9% and 4.0%, respectively, which is below China’s pre-Covid growth trajectory.

Late last year, Chinese leaders began to signal a move towards promoting stability rather than the structural reforms and disciplines they unleashed on a number of key drivers of economic growth, including the real estate, technology and private education sectors.

The Chinese central bank lowered its key benchmark rates twice, in December and January, while freeing up to lend a large sum of funds that it had forced banks to keep in reserve. Authorities have also recently encouraged banks to provide more home loans and made it easier for cash-strapped property developers to offload troubled assets.

However, Sunday’s release of relatively weak PMI numbers “indicates that the government’s policy easing measures have yet to trickle down to the real economy,” Zhang Zhiwei, an economist at Pinpoint Asset Management, wrote in a statement. note.

Zhang said the pandemic, combined with the collapse of the real estate sector, remained the main risks for the Chinese economy. He predicted that the government would further increase political support in the coming months, including through increased budget spending.

Last week, Chinese Premier Li Keqiang reiterated his promises to give more tax breaks to companies, especially small private companies.

More broadly, economists widely expect Beijing to roll out more easing measures as leaders prioritize stability in a politically important year when Chinese leader Xi Jinping will almost certainly seek and obtain a third term in office.

Across China, provincial and regional governments have set economic targets for 2022 that are roughly in line with last year’s growth rates, despite the heightened headwinds the economy is currently facing.

With the exception of Tianjin, a directly administered municipality that has yet to release its 2022 target, the country’s other 30 provincial governments directly administered by Beijing have a weighted average GDP growth target this year of 6.1 percent. , according to China. International Capital Corp., a Chinese investment bank.

This matched the weighted average GDP target set by all provinces and municipalities in 2021 and close to the national target of “6.0% or more” set in March 2021 by China’s top legislature, the CICC said. . Beijing is expected to release its annual growth target for 2022 in early March.

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How rising US interest rates will challenge the Chinese economy https://bizchina-update.com/how-rising-us-interest-rates-will-challenge-the-chinese-economy/ Sun, 30 Jan 2022 08:00:00 +0000 https://bizchina-update.com/how-rising-us-interest-rates-will-challenge-the-chinese-economy/ A sharp about-face by President Xi Jinping suggests China is in crisis mode as rising interest rates pose a serious threat to its economy. In the years leading up to the pandemic, Chinese President Xi Jinping warned that the global economy was facing challenges and that a Black Swan event posed a serious risk to […]]]>

A sharp about-face by President Xi Jinping suggests China is in crisis mode as rising interest rates pose a serious threat to its economy.

In the years leading up to the pandemic, Chinese President Xi Jinping warned that the global economy was facing challenges and that a Black Swan event posed a serious risk to the Chinese economy and the world.

Since the start of the pandemic, the People’s Bank of China, financial regulators and senior Chinese Communist Party leaders have further intensified their calls for consideration of systemic risk, as growing concerns about developments in global financial markets have were expressed last year.

But in recent months, the mood has changed considerably.

President Xi’s U-turn

In a virtual address atop the agenda of the World Economic Forum in Davos in mid-January, President Xi sent a very clear message to the US Federal Reserve and its Chairman, Jerome Powell: Please, don’t raise interest rates.

“If major economies slow down or reverse course in their monetary policies, there would be serious negative fallout. They would present challenges to global economic and financial stability, and developing countries would bear the brunt,” Xi said. .

With US inflation currently running at 7% a year and inflation posing a growing risk to post-pandemic economic recovery around the world, Xi’s comments run counter to the intentions of many. growing number of central banks, including the US Federal Reserve.

Growing risks in China

Although we can only speculate on the reasons for the change in the narrative coming out of Beijing, it is clear that risks are developing within the Chinese economy.

The Chinese government’s crackdown on the riskiest elements of its real estate sector has had a major impact on the industry, demand for materials and the economy in general.

According to a recent report by investment bank UBS, housing starts were down 31% year-on-year in December.

With the real estate sector and associated industries accounting for nearly a third of China’s GDP, there are growing fears that problems within the industry could cause a broader slowdown in the economy.

As risks continue to accumulate and growth in the consumer-driven elements of the economy deteriorates, this has created a rather ironic and, in some ways, contradictory set of circumstances.

One foot on the accelerator, one foot on the brake

Despite the economic difficulties that the Chinese government’s much-needed attempts to rein in risks in the real estate sector have created, they have so far refused to significantly alter course.

However, with so much of China’s economic fortune in the real estate sector, the Chinese government had only a simple choice, accept much weaker growth figures or find another engine of economic expansion.

Given the vastness of the Chinese economy and the practical impossibility of replacing real estate-led growth with sufficient domestic consumption in the short term, Beijing has been left with a very familiar option that it has largely previously used, the construction of infrastructures.

This is yet another departure from the course established by Beijing.

Under the leadership of President Xi’s predecessor, former President Hu Jintao, Hu Jintao reiterated the need for China to rebalance its economy away from capital investment and construction towards a more market-driven growth model. consumer.

Even in the middle of last year, the Chinese government halted work on two high-speed rail projects worth 130 billion yuan ($29 billion), due to concerns over rising debt. local governments.

Now that risks within the global economy continue to pile up and the true extent of China’s economic slowdown is becoming clear, Beijing is not just putting its foot back on the accelerator of infrastructure construction. , he puts his foot to the floor.

In megalopolis Shanghai, a full year of infrastructure and investment bonds will be issued by the end of June.

For the 2022 calendar year, Beijing has allocated a quota of 1.46 trillion yuan ($326 billion) in local government special bonds, as the country seeks to boost investment in local infrastructure and steady economic growth.

Local governments recently issued 190 billion yuan ($42 billion) worth of bonds in just one week, according to a report by Yuan Talks, a Chinese economy- and market-focused media outlet.

The course of Chinese monetary policy has also changed significantly in recent days, with the People’s Bank of China (PBOC) cutting the benchmark one-year lending rate twice in as many months for the first time in a short time. after the start of the pandemic.

Australia’s Fortune

In recent years it has been said that Australia’s economic fortunes rest on a bulk carrier and with up to half of all exports going to China, the Middle Kingdom’s economic fortunes have certainly come to define ours.

The trillion-dollar question that could define Australia’s economic fortunes in 2022 could be this: Can Chinese infrastructure building fill the inevitable hole that will be left by the real estate sector if Beijing continues on its path? current?

With Omicron still a major factor affecting the Chinese economy significantly and the IMF warning of a slowing global economy, the outlook is bleak at best.

As the Chinese government’s strategy continues to evolve, they no doubt have their finger on the panic button. They have already cut interest rates and flouted caution in increasing local government debt. New measures to stimulate growth may require an even greater degree of action.

Ultimately, if the US Federal Reserve raises interest rates in March as markets expect, against President Xi’s advice, China could face tough economic dilemmas in 2022.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator

Read related topics:China

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China’s economy starts the year with a bang https://bizchina-update.com/chinas-economy-starts-the-year-with-a-bang/ Sun, 30 Jan 2022 05:54:00 +0000 https://bizchina-update.com/chinas-economy-starts-the-year-with-a-bang/ China’s economy started the year on an uncertain footing as Covid-19 outbreaks disrupted factory activity and consumer spending, according to a trio of manufacturing and service sector surveys. published on Sunday. Two gauges of China’s manufacturing activity – one official and one private – each retreated in January, while a third measure, of the country’s […]]]>

China’s economy started the year on an uncertain footing as Covid-19 outbreaks disrupted factory activity and consumer spending, according to a trio of manufacturing and service sector surveys. published on Sunday.

Two gauges of China’s manufacturing activity – one official and one private – each retreated in January, while a third measure, of the country’s service sector, shed light on the heavy toll that the latest spike in coronavirus infections coronavirus has inflicted on domestic demand.

China’s official manufacturing purchasing managers’ index fell to 50.1 in January, the National Bureau of Statistics said, from 50.3 in December and just above the 50 mark that separates the expansion of contraction activity.

The result was in line with the median forecast of economists polled by The Wall Street Journal and marked the third month in a row that the measure has been in expansionary territory.

However, the sub-index measuring total new orders contracted further, falling to 49.3 in January, while new export orders improved to 48.4 in January, still in contraction territory. . Factory output in January weakened to 50.9 and likely would have been even weaker had it not been for an acceleration in consumer goods production ahead of the Lunar New Year holiday which begins on February 1, the statistics office said. .

Container ships at a terminal in the port of Taicang in China’s Jiangsu province.


Photo:

Finn / Costfoto/Zuma Press

Meanwhile, the Caixin China manufacturing PMI, a private gauge that’s more focused on smaller private companies than the official manufacturing index – which is weighted more towards large state-owned companies – fell to 49.1 in January, its highest. low level since February 2020, at the peak of the initial Covid-19 epidemic in China.

The sharp decline in Caixin’s manufacturing PMI, from a reading of 50.9 in December, came as the production and total new orders sub-indexes fell to their lowest levels since August, said Caixin.

Overseas demand also contracted at a faster than usual rate as the rapid spread of the Omicron variant of the coronavirus dampened global consumer sentiment.

Weak demand prompted manufacturers to slow their pace of hiring in January to cut costs, the Caixin employment sub-index showed.

“This year, policymakers should focus on stability,” Wang Zhe, an economist at Caixin Insight Group, said in a press release accompanying the data release on Sunday.

Separate data on China’s services sector, also released by China’s statistics bureau on Sunday, showed renewed weakness in a part of the economy that has been lagging the broader pandemic recovery for nearly two years.

The 1000 Trees shopping center in Shanghai.


Photo:

alex plavevski / Shutterstock

While Chinese leaders have stressed the importance of orienting the Chinese economy more towards domestic consumption, this effort has repeatedly been hampered by new Covid outbreaks and the government’s strict measures to contain them.

China’s official non-manufacturing PMI, which includes both services and construction activity, fell to 51.1 in January from 52.7 in December, the statistics bureau said on Sunday.

The sub-index measuring services activity fell to 50.3 in January, the lowest level in five months, from 52.0 in December, dragged down by coronavirus outbreaks across the country.

Sub-indices tracking sectors of the economy requiring close human contact, including hospitality and consumer services, fell below 45, reflecting lower consumer willingness to spend, Zhao Qinghe said, Senior Statistician at the Chinese Bureau of Statistics.

The sub-index measuring construction activity also weakened to 55.4 in January, from 56.3 the previous month, as weather conditions and the return trips of construction workers for the New Year’s Eve festival Lunar year have taken their toll, the statistics office said.

Economic data releases this year give a first glimpse of the health of the world’s second-largest economy, which quickly lost momentum in the final months of 2021.

Chinese authorities encouraged banks to provide more home loans and made it easier for cash-strapped property developers to offload troubled assets.


Photo:

Andrea Verdelli/Bloomberg News

For the whole of last year, China recorded gross domestic product growth of 8.1% over the previous year, but the growth profile was unbalanced. In the third and fourth quarters, year-over-year GDP growth was 4.9% and 4.0%, respectively, which is below China’s pre-Covid growth trajectory.

Late last year, Chinese leaders began to signal a move towards promoting stability rather than the structural reforms and disciplines they unleashed on a number of key drivers of economic growth, including the real estate, technology and private education sectors.

The Chinese central bank lowered its key benchmark rates twice, in December and January, while freeing up to lend a large sum of funds that it had forced banks to keep in reserve. Authorities have also recently encouraged banks to provide more home loans and made it easier for cash-strapped property developers to offload troubled assets.

However, Sunday’s release of relatively weak PMI numbers “indicates that the government’s policy easing measures have yet to trickle down to the real economy,” Zhang Zhiwei, an economist at Pinpoint Asset Management, wrote in a statement. note.

Zhang said the pandemic, combined with the collapse of the real estate sector, remained the main risks for the Chinese economy. He predicted that the government would further increase political support in the coming months, including through increased budget spending.

Last week, Chinese Premier Li Keqiang reiterated his promises to give more tax breaks to companies, especially small private companies.

More broadly, economists widely expect Beijing to roll out more easing measures as leaders prioritize stability in a politically important year when Chinese leader Xi Jinping will almost certainly seek and obtain a third term in office.

Across China, provincial and regional governments have set economic targets for 2022 that are roughly in line with last year’s growth rates, despite the heightened headwinds the economy is currently facing.

With the exception of Tianjin, a directly administered municipality that has yet to release its 2022 target, the country’s other 30 provincial governments directly administered by Beijing have a weighted average GDP growth target this year of 6.1 percent. , according to China. International capital company.

a Chinese investment bank.

This matched the weighted average GDP target set by all provinces and municipalities in 2021 and close to the national target of “6.0 percent or more” set in March 2021 by China’s top legislature, the CICC said. . Beijing is expected to release its annual growth target for 2022 in early March.

-Grace Zhu contributed to this article.

Write to Jonathan Cheng at Jonathan.Cheng@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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China’s economy is slowing, a worrying sign for the world https://bizchina-update.com/chinas-economy-is-slowing-a-worrying-sign-for-the-world/ Mon, 17 Jan 2022 19:52:30 +0000 https://bizchina-update.com/chinas-economy-is-slowing-a-worrying-sign-for-the-world/ BEIJING – Construction and real estate sales have fallen. Small businesses have closed due to rising costs and weak sales. Local authorities in debt reduce the salaries of civil servants. China’s economy slowed markedly in the final months of last year as government measures to curb property speculation also hurt other sectors. Lockdowns and travel […]]]>

BEIJING – Construction and real estate sales have fallen. Small businesses have closed due to rising costs and weak sales. Local authorities in debt reduce the salaries of civil servants.

China’s economy slowed markedly in the final months of last year as government measures to curb property speculation also hurt other sectors. Lockdowns and travel restrictions to contain the coronavirus have also weighed on consumer spending. Strict regulations on everything from internet businesses to after-school tutoring businesses have sparked a wave of layoffs.

China’s National Bureau of Statistics said Monday that economic output from October to December was only 4% higher than the same period a year earlier. This is a deceleration from the 4.9% growth in the third quarter, from July to September.

Global demand for consumer electronics, furniture and other home comforts during the pandemic has produced record exports for China, preventing its growth from stalling. For the whole of last year, China’s economic output was 8.1 percent higher than in 2020, the government said. But much of the growth took place in the first half of last year.

The snapshot of the Chinese economy, the main engine of global growth in recent years, reinforces expectations that the global economic outlook is beginning to darken. Worse still, the Omicron variant of the coronavirus is now beginning to spread in China, leading to more restrictions across the country and raising fears of further disruption to supply chains.

The slowing economy poses a dilemma for Chinese leaders. The measures they have imposed to tackle income inequality and curb businesses are part of a long-term plan to protect the economy and national security. But officials fear they could cause near-term economic instability, especially in a year of unusual political importance.

Next month, Beijing will host the Winter Olympics, which will shine the international spotlight on the country’s performance. In the fall, Xi Jinping, the Chinese leader, is expected to seek a third five-year term at a Communist Party congress.

Mr. Xi sought to strike an optimistic note. “We have every confidence in the future of China’s economy,” he said in a speech to a virtual session of the World Economic Forum on Monday.

But with slowing growth in his country, slowing demand and debt still at near-record levels, Mr. Xi could face some of the biggest economic challenges since Deng Xiaoping began to pull the country out of debt. its Maoist yoke four decades ago.

“I fear that the operation and development of China’s economy in the coming years will be relatively difficult,” Li Daokui, a prominent economist and adviser to the Chinese government, said in a speech late last month. “Looking at the five years as a whole, this is perhaps the most difficult period since our reform and opening up 40 years ago.”

China also faces the problem of a rapidly aging population, which could create an even greater burden on the Chinese economy and its workforce. The National Bureau of Statistics said on Monday that China’s birth rate had fallen sharply last year and was now barely higher than the death rate.

As the costs of many raw materials have risen and the pandemic has prompted some consumers to stay home, millions of private businesses have collapsed, most of them small and family-owned.

This is a big concern because private companies are the backbone of China’s economy, accounting for three-fifths of output and four-fifths of urban employment.

Kang Shiqing invested much of her savings nearly three years ago to open a women’s clothing store in Nanping, a river town in southeastern Fujian province. But when the pandemic hit a year later, customer numbers dropped drastically and never recovered.

As in many countries, there has been a broad shift in China towards online shopping, which can undermine stores by using less labor and operating from cheap warehouses. Mr. Kang was forced to pay high rent for his store despite the pandemic. He finally closed it in June.

“We can barely survive,” he said.

Another lingering difficulty for small businesses in China is the high cost of borrowing money, often at double-digit interest rates from private lenders.

Chinese leaders are aware of the challenges faced by private companies. Premier Li Keqiang has promised further tax and fee cuts to help the country’s many struggling small businesses.

On Monday, China’s central bank made a small move to cut interest rates, which could help slightly reduce interest charges for the country’s heavily indebted property developers. The central bank cut its benchmark interest rates for one-week and one-year loans by about a tenth of a percentage point.

The construction and equipping of new housing represents a quarter of the Chinese economy. Large loans and widespread speculation have helped the country erect the equivalent of 140 square feet of new housing for every urban resident over the past two decades.

This fall, the sector faltered. The government wants to limit speculation and deflate a bubble that had made new housing unaffordable for young families.

China Evergrande Group is just the largest and most visible of a long list of real estate developers in China that have faced serious financial difficulties in recent times. Kaisa Group, China Aoyuan Property Group and Fantasia are among other developers who have struggled to make payments as bond investors grow wary of lending money to China’s property sector.

As real estate companies try to conserve cash, they are launching fewer construction projects. And that has been a big problem for the economy. The price of steel rebar for concrete in apartment towers, for example, fell by a quarter in October and November before stabilizing at a much lower level in December.

Falling house prices in small towns have hurt the value of people’s assets, making them less willing to spend. Even in Shanghai and Beijing, apartment prices are no longer rising.

There have been faint signs of renewed government support for the property sector in recent weeks, but no sign of a return to lavish lending by state-controlled banks.

Evergrande’s financial distress “is a signal that money will be pushed from real estate to the stock market,” said Hu Jinghui, an economist who is a former chairman of the China Alliance of Real Estate Agencies, a trade group. national. “Policies can be relaxed, but there can be no turning back.”

The slowdown in the housing market has also hurt local governments, which rely on land sales as their main source of revenue.

The International Monetary Fund estimates that government land sales each year have raised funds equivalent to 7% of the country’s annual economic output. But in recent months, developers have scaled back land purchases.

Starved of revenue, some local governments have halted hiring and cut bonuses and benefits for civil servants, prompting widespread complaints on social media.

In Hangzhou, the capital of Zhejiang province, a civil servant’s complaint about a 25% cut in her salary quickly spread on the internet. The city government did not respond to a fax requesting comment. In the northern province of Heilongjiang, the city of Hegang announced that it would no longer hire “junior” workers. City officials removed the ad from the government website after it came to public attention.

Some governments have also increased fees charged to businesses in an attempt to make up the shortfall.

Bazhou, a city in Hebei province, levied 11 times more fines for small businesses from October to December than in the first nine months of last year. Beijing has criticized the city for undermining a national effort to reduce the cost of doing business.

Strong foreign demand for Chinese exports, especially consumer goods, has spurred a domestic wave of investment in new factories, up 13.5 percent last year from 2020.

Some areas of consumer spending have been quite robust, notably the luxury sector, where sports cars and jewelry are selling well. Retail sales rebounded 12.5% ​​last year from pandemic-depressed levels in 2020. But retail sales fell in December from November as coronavirus restrictions kept some shoppers at home.

Few expect the government to allow a severe economic downturn this year ahead of the Communist Party Congress. Economists expect the government to ease restrictions on lending and increase public spending.

“The first half of the year will be tough,” said Zhu Ning, vice dean of the Shanghai Advanced Institute of Finance. “But then the second half will see a rebound.”

Li you contributed to the research.

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‘Zero COVID’ and Xi’s ambitions could slow China’s economy in 2022 https://bizchina-update.com/zero-covid-and-xis-ambitions-could-slow-chinas-economy-in-2022/ Mon, 17 Jan 2022 08:00:00 +0000 https://bizchina-update.com/zero-covid-and-xis-ambitions-could-slow-chinas-economy-in-2022/ BEIJING – China’s economy is expected to slow ahead of the ruling Communist Party’s two-decade congress in the fall of 2022, as President Xi Jinping’s sweeping “COVID zero” policy and socialist ambitions are expected to stifle private spending in the country. Even after the end of the Beijing Winter Olympics, which are scheduled to begin […]]]>

China’s economy is expected to slow ahead of the ruling Communist Party’s two-decade congress in the fall of 2022, as President Xi Jinping’s sweeping “COVID zero” policy and socialist ambitions are expected to stifle private spending in the country.

Even after the end of the Beijing Winter Olympics, which are scheduled to begin on February 4, the Communist Party-led government is likely to continue to implement strong anti-epidemic measures, including the lockdown of major cities and the suspension of all public transport services.

To succeed in the economic sphere and secure a controversial third term as party leader in congress, Xi would also promote “common prosperity”, aimed at narrowing income gaps in the country, by imposing more regulations on the country’s lucrative sectors. .

Consumption in China has been “tepid” as people’s movements have only recovered to half the level before the coronavirus outbreak began nearly two years ago, said Kokichiro Mio, senior researcher at the NLI Research Institute in Tokyo.

According to an academic familiar with Chinese government thinking, “the Communist Party’s zero COVID policy will certainly remain in place most of 2022, given President Xi’s insistence on successfully ending the congress after the Beijing Olympics. “.

“For at least another year, Chinese citizens and businesses would be frustrated by the harsh restrictions imposed by the authorities and lose their motivation to increase spending and investment. This would put strong downward pressure on the economy,” added the researcher on condition of anonymity.

On Friday, people walk under lanterns decorating a food court at a shopping mall in Beijing. | Reuters

The world’s second-largest economy grew 8.1% in 2021 from a year earlier as domestic demand recovered from the coronavirus shock, marking the strongest expansion in 10 years, government data showed on Monday.

The economy, however, grew by just 4% in the October-December 2021 period alone, as the outlook darkened amid growing fears of another wave of infections, detected for the first time. in the Chinese city of Wuhan at the end of 2019.

In Xi’an, more than 2,000 people have been infected with the virus for about a month since early December, prompting municipal authorities to lock down the central city of 13 million since the middle of the month.

Tianjin, known as a key gateway to Beijing, has also carried out COVID-19 nucleic acid tests targeting all of its 14 million people since the start of the month after community infections were identified. by the highly contagious omicron variant.

Beijing has not been spared either, with the city government saying on Saturday it had detected its first case of omicron.

In Shanghai, China’s largest shopping mall, some restaurants and shops have been closed since infections were confirmed there.

On Friday, customers take an escalator in a mall in Beijing.  |  Reuters
On Friday, customers take an escalator in a mall in Beijing. | Reuters

“We are not in a situation where we can just pretend nothing has happened,” said Hiroyuki Tanaka, a 36-year-old Japanese employee in the city. “What we have to do is stay in Shanghai and stay at home.

“Many Chinese have refrained from going out and tightened their wallets as they feel anxious about the future,” he said. “Under such circumstances, it is very difficult for the Chinese economy to maintain its growth momentum.”

In January, the World Bank said in a report that it had lowered its forecast for China’s economic expansion in 2022 to 5.1% from 5.4% amid the pandemic.

“I think the pace of China’s economic growth would be much slower than the World Bank estimates,” Tanaka said. “I don’t know what can boost China’s economy this year unless the coronavirus crisis recedes.”

Xi’s efforts to achieve common prosperity have also raised concerns that the most populous country will become a less attractive market, as the goal could place a heavy burden on the wealthy so the government can coercively rectify economic inequalities. .

Drastic policy changes aimed at emphasizing income distribution could “hinder technological progress based on the free ideas of the private sector,” said Kenta Maruyama, an economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo.

A medical worker in protective gear takes a swab from a resident for a COVID-19 nucleic acid test at a makeshift testing site in Tianjin, China on Thursday.  |  CNSPHOTO / VIA REUTERS
A medical worker in protective gear takes a swab from a resident for a COVID-19 nucleic acid test at a makeshift testing site in Tianjin, China on Thursday. | CNSPHOTO / VIA REUTERS

Indeed, the Communist Party has tightened surveillance of the country’s IT giants to curb their monopolistic behavior and disorderly expansion of capital, raising concerns that the innovation of China’s high-tech industry could be hampered.

Large Chinese companies and business leaders would also be forced by central authorities to take measures that could help reduce income disparities, such as donating and providing social support.

“If the government uses common prosperity as a means of power struggle and moves forward in an unpredictable way, it could severely hamper the Chinese economy. Common prosperity is a double-edged sword,” Maruyama said.

Some observers, meanwhile, have said that a possible escalation of tensions between China and Taiwan would make foreign companies – especially those from democratic countries – reluctant to invest in the mainland, which would deal a serious blow to the economy. broadly this year.

Speculation is rife that Xi’s leadership may take military action against democratic Taiwan to unify the self-governing island with the mainland, ahead of the party congress where he would try to lay the groundwork to retain power. for life.

Chinese People's Liberation Army soldiers stand in front of a giant screen as President Xi Jinping speaks during a military parade marking the 70th anniversary of the founding of the People's Republic of China on October 1, 2019 in Beijing.  |  Reuters
Chinese People’s Liberation Army soldiers stand in front of a giant screen as President Xi Jinping speaks during a military parade marking the 70th anniversary of the founding of the People’s Republic of China on October 1, 2019 in Beijing. | Reuters

But Jeff Kingston, director of Asian studies at Temple University Japan, threw cold water on such a possibility.

“There is little chance of an invasion of Taiwan as it is a high risk option which could backfire on Xi,” he said.

China and Taiwan have been governed separately since their separation in 1949 following a civil war. Their relationship has soured since pro-independence President Tsai Ing-wen became the island’s leader in 2016.

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The most read topics on the Chinese economy in 2021 https://bizchina-update.com/the-most-read-topics-on-the-chinese-economy-in-2021/ Fri, 31 Dec 2021 08:00:00 +0000 https://bizchina-update.com/the-most-read-topics-on-the-chinese-economy-in-2021/ Skyline of Shenzhen, China. /APC Skyline of Shenzhen, China. /APC The year 2021 for the Chinese economy has been marked by growing uncertainties caused by scattered outbreaks of Covid-19 and decisive regulatory reform in key areas. As the pandemic continues to weigh on the economy, consumer spending is showing signs of slowing. With competition in […]]]>

Skyline of Shenzhen, China. /APC

Skyline of Shenzhen, China. /APC

The year 2021 for the Chinese economy has been marked by growing uncertainties caused by scattered outbreaks of Covid-19 and decisive regulatory reform in key areas.

As the pandemic continues to weigh on the economy, consumer spending is showing signs of slowing. With competition in the technology sector and new fabricated accusations against Xinjiang, tensions between China and the United States are rising. In the face of all domestic and international challenges, China has implemented a series of regulatory changes in key industries to resolve risks and ensure healthy development.

Here are the most watched and read topics on China’s economy and enterprises during the year on the CGTN website.

Consumption

As the pandemic spreads with epidemics, retail sales of social consumer goods in China in 2021 still recorded monthly growth, but were often below analysts’ expectations.

Chain stores that have expanded rapidly in recent years are now under pressure, such as popular Chinese hotpot chain Haidilao, which plans to close around 300 underperforming restaurants by the end of this year. The chain had more than 1,500 restaurants on the mainland as of mid-2021, according to its website.

Compared to physical stores, online business continued to experience strong growth this year, driven by e-commerce live streaming and emerging national brands.

During this year’s Double Eleven shopping festival (November 1-11), the two major online shopping platforms, Alibaba’s Tmall and JD.com, recorded growth of 8.45% and 29% respectively in year-on-year.

Read more:

Chinese hot pot chain Haidilao to close 300 restaurants by end of 2021 after massive expansion

Made in Xinjiang

In recent years, anti-China forces have been keen to play the Xinjiang card – alleging that Xinjiang products are made by “forced labor”.

Better Cotton Initiative (BCI), a London-based NGO, caught on to the trend and announced it had ceased all operations in northwest China’s Xinjiang Uyghur Autonomous Region over the same charge.

Some fashion companies, such as H&M and NIKE, claimed that they “do not work with any garment factories located in Xinjiang”, although without proof of the accusations, quickly received a boycott from Chinese consumers.

The BCI, however, quietly removed its Xinjiang statement from its website without giving a future explanation, while its Shanghai office said it found no cases of “forced labor” in Xinjiang in a press release published at the end of March.

Read more:

BCI removes Xinjiang cotton statement from its website

Tech War

After nearly three years of detention in Canada, Huawei Technologies chief financial officer Meng Wanzhou returned to China in September. It was widely seen as China’s victory in years of battle with long-arm US jurisdiction amid a escalating tech war between the world’s two largest economies.

Meng was arrested in December 2018 at Vancouver International Airport on a US warrant charging her with bank fraud for allegedly misleading HSBC Holdings about Huawei’s business dealings in Iran, but Meng and Huawei have denied the charges.

Chinese Foreign Ministry spokeswoman Hua Chunying said the charges against Meng were purely fabricated and that her detention was “arbitrary”.

She was deemed free to leave Canada without extradition proceedings in Canada or prosecution in the United States after reaching a deferred prosecution agreement with the United States Department of Justice.

Read more:

Meng Wanzhou returns to China after 3 years of detention in Canada

Where is Huawei going after the chip shortage?

The growing competition began under the Trump administration and continued under current US President Joe Biden.

Beginning as a trade dispute, the conflict quickly escalated into a battle over core technologies, including semiconductors, 5G and AI.

In December, more Chinese companies were added to the U.S. Commerce Department’s entity list and an investment blacklist by the Treasury Department.

Read more:

China condemns US unjustified suppression of Chinese companies

Carbon reduction

This year, China officially launched its long-awaited domestic carbon trading market in July.

China’s Emissions Trading System (ETS), which has replaced the EU’s as the world’s largest emissions trading system, is expected to help China deliver on its reduction in carbon emissions – reaching peak carbon emissions by 2030 and carbon neutrality by 2060.

China will firmly control energy-intensive and emission-intensive projects, aiming to improve its “double-checking system” on energy consumption and energy intensity, or the amount of energy consumed per unit of GDP.

Read more:

CGTN Explains: Understanding China’s Domestic Carbon Emissions Trading Market

Regulatory Storms

To avoid speculation and systematic risk, China established a new regulatory guideline in 2020 to control the leverage of real estate developers and asked banks to cap outstanding real estate and mortgage loans this year.

Some real estate developers who were exposed to high leverage and indiscriminate expansion, struggled with liquidity pressures and even defaulted, such as China Evergrande.

But market regulators, including the central bank, reiterated that individual cases will not impact regular market funding and local governments have worked with developers to address risks and maintain stable development of the market. Chinese real estate sector.

Read more:

PBOC: Evergrande’s debt issuance will have no impact on long-term funding

Another major regulation has landed on the after-school tutoring (AST) industry, which has boosted Chinese parents’ anxiety with soaring investment.

China announced in July that it would ban curriculum-based AST companies from raising capital through public listings, and listed companies will not be allowed to invest in curriculum-based ASTs. through equity investments or to acquire AST assets (through the issuance of shares or cash).

The new rules also prohibited the granting of new AST licenses, and existing AST operators were only allowed to register their schools as nonprofits.

The new regulations (which leave the sector once seen as a “cash cow” in the education sector abandoned by investors) aim to further improve the quality of education and school teaching.

Read more:

China bans tutoring institutions in basic school subjects from IPO and foreign M&A

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Charts: China’s economy in 2021 https://bizchina-update.com/charts-chinas-economy-in-2021/ Fri, 31 Dec 2021 08:00:00 +0000 https://bizchina-update.com/charts-chinas-economy-in-2021/ A view of the Lujiazui financial area, Shanghai, China. /APC A view of the Lujiazui financial area, Shanghai, China. /APC The year 2021 was at the historic convergence of China’s “two centenary goals”. After decades of effort, China has achieved the first centenary goal of building a moderately prosperous society in all respects, President Xi […]]]>

A view of the Lujiazui financial area, Shanghai, China. /APC

A view of the Lujiazui financial area, Shanghai, China. /APC

The year 2021 was at the historic convergence of China’s “two centenary goals”. After decades of effort, China has achieved the first centenary goal of building a moderately prosperous society in all respects, President Xi Jinping announced at the grand rally to celebrate the 100th anniversary of the founding of the Communist Party of China on July, 1st.

Now, the country has embarked on a new journey, embarking on the second centenary goal of fully building a modern socialist country.

Despite the persistence of COVID-19, China has maintained a leading position in the world in economic development and epidemic control, with progress made this year in industrial chain resilience, reform and openness, and the livelihoods of the people.

Economists believed China would likely post its second year of positive growth in 2021, after being the only major economy in the world to record positive economic growth the previous year.

The World Bank predicts that the Chinese economy will grow by 8% this year.

Hang Seng Bank China forecast an 8.2 percent annual growth rate in China in early December, noting that upside factors such as strong exports and accelerating manufacturing investment were supportive.

“These positive factors will not only be maintained at the end of this year, but will continue into next year,” Wang Dan, the bank’s chief economist, said in a note.

Strong foreign demand has boosted China’s exports and industrial profits. “Chinese exports have grown at a double-digit rate since COVID-19 and are currently at historic highs, especially exports to US and European markets. The world will continue to depend on China for production as long as the outbreak continues. “Wang told CGTN.

However, the trajectory of the Chinese economy is not without obstacles. China’s economic growth rate has shifted from high to low in the first three quarters, reflecting mounting downward pressure facing the country’s economy.

The annual Central Economic Work Conference in December warned that China’s economic development is facing pressure from shrinking demand, supply shock and weakening expectations, and the environment exterior becomes more and more complicated, dark and uncertain.

“We must face the challenges head-on while remaining confident,” said a statement released after the meeting, citing China’s strong economic resilience and unchanged fundamentals underpinning long-term growth.

Next year’s economic work should prioritize stability while pursuing progress, the meeting concluded.

Common prosperity

To build a modern socialist China, eradicating extreme poverty was necessary, but it was not enough. Gaps between regions, urban and rural areas, and in people’s incomes, are also issues to be addressed for long-term prosperity.

And that’s when China began to strive for common prosperity, which refers to the wealth shared by all, both materially and culturally, to further improve people’s well-being. . China has increasingly focused on pursuing “common prosperity,” that is, wealth shared by all, through a systematic portfolio of policies, such as tax reforms and encouraging philanthropy.

Common prosperity is an essential requirement of socialism and a key element of modernization with Chinese characteristics, Xi said at the 10th meeting of the Central Finance and Economy Committee in late August.

For economists, much of China’s major economic tasks for 2022 will reflect the central national agenda for common prosperity.

Read more: How will China achieve common prosperity? – Enlarge the “cake” first

Risk reduction and model change

In Wang’s opinion. China has managed to contain financial risks in the housing market and local government debt this year.

“Central authorities have sent a clear signal about the long-term nature of these policies. The economic model is in transition from pursuing growth to high-quality development,” she said.

Despite the Chinese economy’s outperformance for many years, its system needs to be adjusted to address and correct several imbalances, said Jeremy Stevens, chief China economist at Standard Bank.

In 2020, China’s top leaders proposed a new development paradigm called “dual circulation” to anchor the future development of the country’s economy. In such a paradigm, the Chinese economy postulates to be dominated by domestic economic circulation and is facilitated by circulation between China and the rest of the world.

Read more: Why is the dual circulation development model important for the Chinese economy?

“Already in June 2020, Beijing had made it clear that it was returning to focus on medium-term political objectives, and this year it has started again to reduce the risks of the financial system, for example. This pivot towards a vision beyond beyond the cyclical path is critical to continued economic success,” he told CGTN.

“The end game is that consumption becomes a larger share of GDP…Common prosperity is a recognition that consumption must drive growth. To this end, it is not enough for Chinese households to simply consume with greater share of their income, but income needs to be greater, wealth needs to be shared more widely, and people need to be able to spend more of that income on discretionary items,” he added.

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What an Unusual 2021 Says About the Future of China’s Economy https://bizchina-update.com/what-an-unusual-2021-says-about-the-future-of-chinas-economy/ Fri, 31 Dec 2021 08:00:00 +0000 https://bizchina-update.com/what-an-unusual-2021-says-about-the-future-of-chinas-economy/ In a year marked by unexpected disruptions and growing uncertainties, China is expected to deliver stable growth thanks to its swift policy response. The world’s second-largest economy grew 9.8% year-on-year in the first three quarters, a hard-won result amid various challenges including pandemic resurgences and mounting debt pressures, reflecting the effectiveness of policies aimed at […]]]>

In a year marked by unexpected disruptions and growing uncertainties, China is expected to deliver stable growth thanks to its swift policy response.

The world’s second-largest economy grew 9.8% year-on-year in the first three quarters, a hard-won result amid various challenges including pandemic resurgences and mounting debt pressures, reflecting the effectiveness of policies aimed at supporting growth while defusing risks.

For the year as a whole, the World Bank forecast that China’s economy would grow by 8%, above the government’s target of “more than 6%”.

A review of the government’s fine-tuned policymaking in 2021 provides insight into how China has addressed common challenges facing the global economy and what that means for the year 2022 and beyond.

ACCURATE PANDEMIC CONTROL

Two years into the pandemic, global policymakers are still trying to figure out the best way to balance growth with controlling the pandemic.

China has adopted strict pandemic control policies in 2021, eliminating new epidemics as soon as possible through early detection, rapid response, targeted containment and effective treatment of COVID-19 patients.

Such policies have proven effective not only in ensuring public health, but also economically, as the gains from normalized production and consumption outweigh the costs of fighting the pandemic, analysts said.

“Overall, the policies have brought significant benefits. Thanks to these policies, the growth rate of the Chinese economy has outpaced the majority of other economies over the past year,” said Lu Ting, chief economist for China at Nomura securities firm.

Next year, striking a balance between precise pandemic control and economic growth will be increasingly critical, Lu said.

Although COVID-19 has caused consumption disruptions, the impact will be mitigated by the “learning effect”, reflected in the strengthening of government capacity to precisely contain COVID-19 and improve the willingness of people to consume offline, said the China International Capital Corporation (CICC). in a report.

“For 2022, we should not be too pessimistic about the possible impact of COVID-19. We expect household consumption to pick up slightly on the back of growth-friendly policies,” the CICC said.

TARGETED CREDIT SUPPORT

Another challenge facing global policymakers in 2021 is how to provide much-needed credit support to the COVID-battered economy without adding excessive debt.

Instead of printing money and pumping money into the entire financial system, China adopted a prudent monetary policy in 2021, channeling funds through targeted monetary tools to specific sectors such as the manufacturing industry as well as the most vulnerable small and medium-sized enterprises.

The country’s central bank has cut the reserve requirement ratio (RRR) of financial institutions twice this year to provide liquidity to the real economy.

Additionally, the country has been more proactive in taking fiscal measures to support growth, reducing taxes and fees for businesses while transferring central funds to support regions affected by natural disasters.

On the other hand, the country has remained cautious in channeling funds to the housing sector, continuing its debt reduction campaign that has been going on for years on the principle that “housing is for living in, not for living in.” speculation”.

In its latest effort to support the real economy, the country cut the benchmark one-year market-based benchmark rate by 5 basis points in December, but left the benchmark five-year plus rate unchanged, on which many lenders base their mortgage rates on.

Recent reductions in the reserve requirement ratio and lending rate signal more accommodative monetary policy, although efforts to reduce financial sector risk should continue, the World Bank said in a report.

In 2022, China will continue to implement proactive fiscal policies and prudent monetary policies, decided the Central Conference on Economic Work, adding that the country will stimulate the virtuous cycle and healthy development of the real estate sector with specific policies to the city.

ORDERLY GREEN TRANSITION

Despite growing pressure on growth, China has steadily pushed its cutting-edge and carbon neutral agenda with institutional innovations in 2021.

As a market-based mechanism to incentivize companies to reduce their carbon emissions, a national carbon market began trading in July, which saw the active trading of carbon emissions allowances.

While encouraging the use of green energy, policy makers paid particular attention to the potential disruption of energy supply and economic activity, reiterating that local governments should avoid carbon reduction “style countryside “.

“Achieving peak carbon and carbon neutrality is an inherent requirement for promoting high-quality development, which requires constant effort. It is impossible to achieve the goal all at once,” the Central Economic Labor Conference said.

To ensure a smooth transition to low-carbon development, China has stepped up investment in green technologies and created opportunities for domestic and foreign enterprises.

Within the framework of carbon targets, investments in the green manufacturing sector will see notable growth over the next year, particularly sectors such as pollution control, the digital economy as well as new energies and materials, the Bank of Communications said in a report.

Investments in these areas will boost near-term demand and help China transition to new engines of long-term growth, according to the report.
Source: Xinhua

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Watch China | Chinese economy faces harsh winter https://bizchina-update.com/watch-china-chinese-economy-faces-harsh-winter/ Fri, 17 Dec 2021 08:00:00 +0000 https://bizchina-update.com/watch-china-chinese-economy-faces-harsh-winter/ [ad_1] ~~ ~ The “Mighty 100” is a term frequently discussed in the context of the Chinese real estate industry. In Chinese, this “Strong 100” designates the top 100 real estate developers in the country. Naturally, most of the major Chinese real estate developers are included in this list. On December 2, the Chinese business […]]]>


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The “Mighty 100” is a term frequently discussed in the context of the Chinese real estate industry.

In Chinese, this “Strong 100” designates the top 100 real estate developers in the country. Naturally, most of the major Chinese real estate developers are included in this list.

On December 2, the Chinese business media all published shocking news about the “100 forts”.

According to CRIC Research, a private research institute that compiles and analyzes real estate information across China, total sales of the “Strong 100” in November of this year were around CNY 750 billion (about CNY 13,400). billion yen, or $ 117.5 billion USD), down 3.4% from October and 37.6% from the same period last year.

Of the various statistics used to examine economic conditions, year-over-year comparison is generally considered the most important. For example, a country’s economic growth rate, expressed as a year-to-year comparison, is the most appropriate indicator of an economy’s growth or decline.

The Chinese group Evergrande, one of the “100 Strongs” in the sights of surveillance equipment.

As a result, the fact that the combined sales of China’s “Strong 100” real estate companies fell nearly 40% in November compared to the same period in 2020 surprised the country’s financial media and sent major shockwaves through the world. estate market.

These figures testify to the rapid cooling of the Chinese real estate market and the emergence of a serious situation which could shake the real estate sector within it.

One of the causes is the recent emergence of information on the debt problems of the China Evergrande group, one of the main Chinese real estate development giants. Since then, domestic investors have become increasingly worried about the future of the real estate market and have started to divert their investments away from real estate.

While the future of the real estate market remains in question, the China Index Academy, a private research institute, released some statistics on December 1 that suggest a bleak future for the real estate market.

In order for real estate companies to develop properties in China, the right to use the land must first be transferred to them by the government. According to statistics from China Index Academy, the total amount of land transfer fees paid by “Strong 100” companies from January to November 2021 was CNY 2,346 trillion in the same period in 2020.

While this 17.7% drop is a very serious figure, another set of figures released by the same research institute is even more shocking.

In November 2021, the top 50 “Strong 100” companies paid 72.3% less for land transfers than in October of this year, and 91.4% less than the same period in 2020.

The 72.3% and 91.4% declines are extremes rarely seen in the economy. What this sharp drop in land transfers means is that real estate developers have made the decision not to develop any real estate at this time, in anticipation of a cooling of the real estate market.

As winter approaches, it looks like China’s real estate development industry may go into “hibernation.” If this becomes a reality, the blow to the Chinese economy as a whole could be unfathomable.

Last year in 2020, real estate investments across China totaled approximately CNY 14 trillion (approximately JPY 250 trillion, or US $ 2.2 billion) for the year. China’s gross domestic product (GDP) for 2020, the same year, was just over CNY 100,000 billion (JPY 1.8 quadrillion, or US $ 15.8 trillion), which shows that real estate investment represents around 14% of GDP.

Taking into account the spillover effects, it is commonly accepted in China that around 30% of the economy depends on real estate development.

If China’s real estate development industry goes into “hibernation”, we could see an immediate and significant drop in China’s economic growth rate that could capsize the entire economy. It looks like the Chinese economy is about to enter another “harsh winter”.

RELATED: We want decarbonization, but is it helping to drive up inflation?

(Read the Sankei Shimbun China Watch review in Japanese on this link.)

Author: Seki Hei

Find other articles by the author in English on JAPAN Forward on this link.

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PBOC May Need To Boost Chinese Economy As ‘Stagflation’ Risk Rises https://bizchina-update.com/pboc-may-need-to-boost-chinese-economy-as-stagflation-risk-rises/ Mon, 22 Nov 2021 08:00:00 +0000 https://bizchina-update.com/pboc-may-need-to-boost-chinese-economy-as-stagflation-risk-rises/ [ad_1] Liu Shijin, a member of the People’s Bank of China monetary policy committee, said in an online forum on Sunday that the world’s second-largest economy may face “near stagflation” for the remainder of this year and through. in 2022, if demand continues to struggle and the cost of goods leaving Chinese factories remains high. […]]]>


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Liu Shijin, a member of the People’s Bank of China monetary policy committee, said in an online forum on Sunday that the world’s second-largest economy may face “near stagflation” for the remainder of this year and through. in 2022, if demand continues to struggle and the cost of goods leaving Chinese factories remains high.

“We need to pay attention to it, because if it happens, it will affect not only the fourth quarter, but also next year,” Liu said.

Stagflation – when inflation is high but economic growth slows – can be problematic because policies aimed at curbing inflation, such as higher interest rates, are likely to dampen growth even more. Policies aimed at stimulating growth risk pushing prices further upwards.

Even with his warning, Liu still expects the economy to meet China’s growth target of over 6% for the year.

Risks to the Chinese economy have accumulated in recent months. Along with soaring producer price inflation in factories around the world, the country is also grappling with a severe energy crisis and a big slowdown in real estate.

Chinese Premier Li Keqiang recently acknowledged these concerns, telling a seminar in Beijing last week that the economy was facing “further downward pressure.” He called the recent Covid-19 outbreaks, severe flooding, rising commodity prices and energy shortages as major concerns.

Li also said policymakers should focus on helping “market players,” including manufacturing companies and small businesses, by offering tax cuts or reductions in administrative costs.

“Fear of slower growth is clearly increasing among technocrats in different government agencies,” wrote Larry Hu, head of the Chinese economy at Macquarie Group, in a report on Sunday.

China's

Analysts also suspect that Chinese policymakers may consider cutting interest rates or taking other steps to ease monetary policy. A quarterly report released by the central bank on Friday omitted phrases that previously appeared to signal stricter policies.

Deleting those phrases suggests a change on the horizon, according to analysts at Goldman Sachs, Nomura and Citi.

“In our view, these cuts represent an official change in PBoC policy and set the stage for more decisive monetary and credit easing,” Nomura analysts wrote in a Sunday report.

These changes are not happening yet. On Monday, the central bank kept the Loan Prime Rate – a benchmark rate banks charge corporate clients for new loans – unchanged for November, the 19th month in a row.

But Capital Economics analysts believe it won’t be long before the central bank starts cutting key rates.

“As economic tensions continue to grow, there will be more pressure to ease funding tensions from indebted borrowers,” Julian Evans-Pritchard, senior Chinese economist for the company, wrote in a report Monday. He added that Capital Economists believe the central bank will start cutting rates before the end of 2021, “followed by further cuts in 2022.”

Others expect the central bank to explore other options. Rather than changing interest rates, Goldman Sachs analysts said they expected more targeted support for green development and small and medium-sized businesses.

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