China’s GDP expanded 8.1% in 2021, but growth is slowing

That figure is roughly in line, if not slightly higher than, the expectations set by many economists. And it outstrips the Chinese government’s target last year for its economy to expand at least 6% for 2021.

But GDP expanded just 4% in the last quarter of the year compared to a year prior, according to government figures released Monday. While higher than the 3.6% growth forecast in a Reuters poll of analysts, it’s still the slowest pace in a year and a half.

“As everyone has seen, domestic growth is under pressure,” said Ning Jizhe, director of the National Bureau of Statistics, at a press conference in Beijing on Monday.

Growth in the fourth quarter was bolstered by industrial production, which rose 4.3% in December from a year earlier — accelerating from November’s 3.8% growth.

That was thanks in part to the continued strength of exports. Shipments from China beat forecasts and jumped 21% in December, bringing the value of China’s exports for the year to nearly $3.4 trillion.

But consumption dramatically weakened amid renewed Covid-related disruptions, such as the massive outbreaks in Zhejiang and Xi’an that caused authorities to close entertainment venues, shut down factories, and put thousands of people in quarantine. Retail sales increased just 1.7% in December from a year earlier, sharply lower than November’s 3.9% uptick.

Property investment and new housing projects that have started construction also declined.

While the final quarter was “better than expected,” according to Larry Hu, head of China economics for Macquarie Group, the economy faces “multiple headwinds” this year, especially from Omicron and the real estate sector.

Hu noted in a research note that the People’s Bank of China on Monday cut a key interest rate for the first time since April 2020, indicating that authorities are now ready to loosen monetary policy. He suspected that China’s loan prime rate — a benchmark rate at which commercial banks lend to their best customers — could be next.

“Downward pressure on growth will persist in 2022,” wrote Louis Kuijs, head of Asia economics at Oxford Economics, in a Monday research report. While he expects real estate activity to eventually start recovering in the second half of the year, Kuijs also suspects that China is unlikely to relax its zero-tolerance approach to Covid until late in the year.

“As a result, we project disappointing consumption growth this year, especially” in the first half of 2022, Kuijs added.

A troubled real estate sector

China has been contending with a slew of problems recently, including tumult in its property sector.

Troubled Chinese real estate developer Evergrande — which has some $300 billion of total liabilities — has been struggling to pay its debts and was recently ordered to demolish a few dozen buildings in the country. Analysts have been long concerned that a collapse by Evergrande could trigger wider risks for China’s property market, hurting homeowners and the broader financial system.
Another big Chinese real estate developer might need to sell off property

Monday’s statistics showed that property investment grew 4.4% last year. December marked a significant downturn, though: Investment plunged 13.2% in that month alone, according to an estimate by Chaoping Zhu, chief global strategist for JP Morgan Asset Management.

And the amount of floor area covered by newly started housing projects plummeted more than 11% in 2021 from the prior year, government data showed.

“We expect further weakness [of the housing sector] over the coming quarters amid tight financing constraints for developers,” said Julian Evans-Pritchard, senior China economist for Capital Economics, in a Monday research note.

China’s Zero-Covid policy will persist

Beijing’s unwavering insistence on stamping out any trace of the coronavirus, meanwhile, is facing a huge test as authorities grapple with stubborn outbreaks and lock down large swaths of the population to contain them.

Economists have warned that China’s zero-Covid approach to containing the virus could spell serious problems for the economy in 2022. Goldman Sachs, for example, slashed its projection for Chinese economic growth in 2022 to 4.3% from 4.8%, just over half of last year’s figure. They expect consumption to be worst hit as a result of the strict Covid curbs.

December’s weak retail sales data is already showing evidence of how disruptive the coronavirus is becoming in China.

Beijing on high alert as China's first Omicron cluster edges closer weeks before the Olympics

“The resurgence of regional outbreak and lockdowns, as well as supply bottlenecks in the automobile industry, all weighed on consumption,” said Zhu from JP Morgan Asset Management.

Now the threat that Omicron poses to factories and supply chains is compounding the problem.

Ship congestion at Chinese ports has worsened recently as more cities implement strict Covid restrictions because of the outbreaks. Some places are also tightening testing policies ahead of the Chinese New Year holiday season starting January 31.

The Shekou terminal in Shenzhen, for example, has begun restricting truckers bringing in loaded containers….

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