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17 Jan 2022

International Economy

China’s 4Q21 Economy Grew at Slowest Rate of 4.0% YoY in 2021, but 2022 GPD Growth Projected at 5.0% (Business Brief No.3963)


        The Chinese economy grew 8.1 percent YoY during 2021, bettering the government’s set target of at least 6.0 percent YoY. However, it reported the lowest growth at 4.0 percent YoY during 4Q21 due to a number of factors. These include the low base of the previous year, hefty debts, persistent slowdown in the property sector, Omicron-driven COVID-19, which led to the reimposition of lockdown measures as part of the government’s zero-COVID strategy, and higher manufacturing costs. Concurrently, the relevant Chinese authorities opted to use monetary policy, aimed at bolstering liquidity and economic growth by trimming the reserve requirement ratio (RRR) that financial institutions must hold for the second time in 2021 by 0.5 percent, effective December 15, 2021. Moreover, the one-year loan prime rate (LPR) was lowered by 0.05 percent to 3.8 percent on December 20, 2021, representing the first cut in 20 months since April 2020.   
        Meanwhile, China’s private consumption continued to thrive despite some lockdown measures to combat the COVID-19 pandemic. In 4Q21, the Caixin Services PMI, a private survey that gauges China’s smaller firms, increased within a range of 52.1-53.8 after slipping below 50 to 46.7 for the first time in 2021 during August.  The manufacturing sector was persistently pressured by higher production costs although the energy crisis began to subside. The Producer Price Index (PPI), which gauges ex-factoring product costs, remains at an elevated level. It hit a record high of 13.5 percent YoY in October, before dropping to 10.3 percent YoY in December, attributable partly to ebbing demand for construction materials such as cement and steel during winter, plus declines in commodity prices. Fixed-asset investment in the manufacturing sector and hi-tech industry reported favorable growth, while investment in the infrastructure and property sectors grew at a slower rate as a result of China’s “three red lines” policy, aimed at reducing debts incurred by property companies and setting maximum limits for commercial banks to extend loans to property developers and home buyers. On the international front, China reported the highest trade surplus since it was first recorded in 1950 despite the protracted trade war. Its trade surplus reached USD676 billion, representing a 29.1 percent YTD, YoY growth. China’s 2021 exports and imports grew 29.9 percent YTD, YoY, and 30.1 percent YTD, YoY, respectively.
        Looking into 2022, the Chinese economy will continue to be pressured by external factors, namely ongoing geopolitical conflicts, and internal risks such as the COVID-19 outbreak, persistent sluggishness in the property sector, and a regulatory crackdown that is expected to be tightened, especially on monopolies and businesses related to common prosperity. In spite of this, it is believed that China will attempt to maintain its economic growth at around 5.0 percent, achieved through proactively easing its monetary and fiscal policies. Given this, KResearch expects that the Chinese economy will grow 5.0 percent or within a range of 4.8—5.4 percent during 2022.

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International Economy