WHAT IS THE OUTLOOK FOR THE CHINESE ECONOMY?

23.12.2021 The Chinese economy dealt with the Covid pandemic very well. Indeed, it is expected to register around 8% growth in 2021. However, with the crucial property sector now slowing rapidly what are the prospects for 2022?

The Chinese economy bounced back strongly from the Covid pandemic. The authorities seem to have been more successful at containing the spread of infection than many western governments. Additionally, its manufacturing sector benefited from strong demand as western consumers spent their lockdown savings. Overall in 2021 official annual growth is expected to be around 8%.

However, as the year has worn on growth has slowed considerably. This reflects a number of challenges such as a regulatory clampdown on the technology sector, power shortages that have adversely effected China’s heavy industry and a real estate slowdown. The latter has been driven by one large real estate developer that had become over indebted. It is expected that it will enter a debt restructuring process in the coming weeks.

The difficulties in the real estate development sector represent a significant challenge for Beijing. This is because it accounts for roughly a quarter of Chinese economic growth while around seventy percent of consumer wealth is held in property.  In order to manage the slowdown in the sector it is expected that some of the real estate development projects will be taken over by local governments. Furthermore, state sponsored infrastructure spending is expected to be significantly increased to try to compensate for the ‘lost’ growth.

In 2022 the risks to Chinese growth will be to the downside and it is expected to be in a range of 3 – 5%. The growth slowdown is likely to prompt the Chinese authorities to give the technology sector a much freer hand than in 2021. Monetary policy is also likely to be eased in the first half of 2022.

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This post was written by Robin