China’s macro economy will be subjected to significant pressures this year from shrinking domestic demand, uneven supply, and weakening consumer confidence, warns Xu Qiyuan, deputy director of the Institute of World Economics and Politics, an institute under the Chinese Academy of Social Sciences.
Crucially too, the relatively better performance of domestic industrial sectors over the past two years, compared with China’s service sector, seems to have already passed its climax, he observed to delegates attending Mysteel’s annual conference in Shanghai on February 26. The changes were worthy of cautious tracking, he added.
Regarding demand, Xu pointed out that since China’s main struggle against the coronavirus has ended, overseas economic demand is proving stronger than domestic demand, and that the faster growth in overseas demand was particularly marked in last year’s fourth quarter. Domestic consumption was rather feeble in 2021, and fixed investment even turned negative.
Going forward, Xu predicted that Chinese exports will continue to perform relatively strongly during the current January-June half but that during H2, exports might face some pressure, due to the recovery of supply in the United States and among countries in Southeast Asia. Consequently, actual growth in Chinese exports may decline to below 2% this year – well down from 10% at the end of 2021 – which in turn could drag the nation’s GDP down by as much as 1 percentage point.
Regarding supply, the overall profit performance of Chinese industry was rather robust in 2021, but the achievement was not uniform across different industries and over different time periods, Xu observed. For this year, though the shock of the pandemic on Chinese enterprises across all supply chains is easing, risks still exist, Xu warned.
Domestic investment in manufacturing in 2021 was relatively optimistic, maintaining double-digit growth, while infrastructure investment rebounded significantly after the relaxation of government bonds for specific use last December, he noted. However, growth of real estate investment declined 13.9% on year last December – a recent record fall – due to tighter regulation.
For this year, the policy focus among Beijing’s economic planners will mainly be on infrastructure, while that regarding real estate will emphasize promoting the healthy development of housing consumption.
Looking ahead, China will continue to prioritize economy stability and economic growth in 2022, with encouraging domestic consumption being the primary means. Government policies on infrastructure and manufacturing will be significantly looser, while policies applying to real estate will see some “correction” rather than “diversion”, Xu believed.
Looking beyond China, Xu noted that the global economic expectations have generally weakened as governments and central banks grapple with the lingering aftereffects of COVID-19 on their economies and those of the trading partners.
From the central government’s macro policy level, fiscal policies will be significantly strengthened, with monetary policy following closely behind, to ensure that financing costs are relatively stable. During his year too, the exchange rate will likely remain flexible without any significant intervention from China’s central bank, Xu suggested.
Written by Victoria Zou, zyongjia@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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