What an Unusual 2021 Says About the Future of China’s 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 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.