How China will maintain stable growth in 2022


According to data for the first 11 months of 2021, the amount of capital investment in industries has varied widely, with infrastructure flat, manufacturing strong and housing resilient. Driven by supportive government policies, capital investment in infrastructure and manufacturing will increase this year.

The newly added 1.46 trillion yuan ($230 billion) special bond for 2022 was launched late last year. Meanwhile, credit lending will be increased and more quality projects will be approved. New types of infrastructure and urbanization projects, large water transport and conservancy construction projects, high-end manufacturing and “common prosperity” will be the focus of capital investment this year.

Capital investment will continue to serve as the “ballast stone” for China’s steady economic growth in 2022, with infrastructure investment and manufacturing being the main drivers. Overall fixed asset investment is expected to grow 6.5% year-on-year in 2022, of which infrastructure investment will grow 8% on an annual basis, manufacturing investment by 8% and real estate investment by 4.5%.

Real estate market policies may focus more on market expectations and growth rates in 2022. There will be more emphasis on meeting the reasonable needs of buyers. In this sense, more liquidity will be provided to qualified property developers, with development loans, bonds and leasing being slightly improved.

Differentiated policies will be adopted in the cities of the real estate sector, in particular for the presale mechanisms. A greater supply of land can be provided in some second-tier cities. Specifically, commercial property sales will slow in 2022. There will be less supply in the general land market while prices are expected to rise. New construction could bottom out and the growth rate of real estate investment will slow further. House prices could contract in the first few months but rise in the second half, and investment in real estate development is expected to increase by 4.5% year-on-year in 2022.

Other factors will support the rapid recovery of the consumer sector in China in 2022. Retail sales of social consumer goods are expected to return to pre-COVID levels.

As the chip shortage problem has been gradually resolved, production in many countries and the global supply chain will be further improved, leading to the resumption of auto sales. While the central authorities will adhere to the principle that “housing is for living, not for speculation”, the reasonable mortgage needs of Chinese people can be met, which will help improve consumption in some areas.

The labor market remains stable, which helps to increase people’s disposable income. In the first three quarters of 2021, China’s per capita disposable income rose 9.7% year-on-year, up 14.8% from the data for the first three quarters of 2019.

Stability is one of the key words for 2022, according to the central economic work conference held at the end of 2021. Given the uncertainties related to the contagion of COVID-19 and inflation, overall consumption is expected to increase by 7% per year. -year in China this year.

Chinese exports will continue to show strong resilience in 2022 despite a slight slowdown in the growth rate. Europe and the United States will continue to show demand for Chinese products while ASEAN economies will show greater demand for intermediate products as they recover economically. Changes in exchange rates and improving ocean freight markets could stabilize exports. Consequently, Chinese exports could increase by 10% year-on-year in 2022.

China’s import demand will steadily increase in 2022. The demand for imported primary energy products and other bulk products will remain stable. Supplies of energy and primary products will be limited. Commodity prices will therefore not fall in the short term. Economic and trade relations between China and the United States are expected to improve in 2022, which will lead to an increase in US imports this year. Import growth is expected to slow to an annual growth rate of 9% this year.

Rising pork prices could be a major driver of higher CPI (consumer price index) in the second half of 2022, a trend that could be consolidated by the end of the first quarter of this year. But hog prices will not reach the highs seen in 2019.

The reform of the electricity pricing system should have some impact on prices in downstream sectors. As energy prices and carbon trading costs will be included in electricity prices, the price of the final product will also increase accordingly. Oil prices are unlikely to fall sharply in 2022. Combined with the accelerated recovery in consumption, the non-food CPI could fluctuate at a high level.

The CPI is expected to rise steadily after the first quarter of 2022, with the annual average CPI growth rate expected to be around 2.8% this year. The average annual growth rate of the PPI (Producer Price Index) is expected to stand at around 3.1%, with the gap between the CPI and PPI readings likely to reverse in the middle of the year.

The renminbi exchange rate against the US dollar will struggle to continue to strengthen in 2022, and it is mainly expected to fluctuate between 6.2 and 6.7. China’s monetary policy is stable, and the goal of stabilizing growth supports the country’s economic growth fundamentals, supporting the current yuan exchange rate.

However, certain factors can put pressure on the currency to depreciate. The data shows that China’s GDP grew by 8.1% in 2021 and is expected to grow by 5.7% in 2022, and that of the United States will be 5.6% and 4%, respectively. The narrowing of the economic growth gap between China and the United States could help strengthen the US dollar.

The US Federal Reserve will begin a cycle of monetary tightening. China will also cut its RRR (required reserve ratio) and LPR (prime lending rate) to reduce financing costs in the real economy. The spread between 10-year bond yields in China and the United States will narrow further. In the first half of 2022, the US dollar is highly likely to strengthen amid swings, while the renminbi will come under downward pressure for some time.

Fiscal policy will remain active in 2022 and the budget deficit rate could be set at around 3.2%. Fiscal policies will aim above all to ensure the growth of market entities and to stabilize incomes and the labor market. Small, medium and micro-enterprises will get the most attention. Spending on education, social security, employment and medical care is expected to increase significantly. The value of special bonds newly issued by local governments will increase slightly to between 3.8 trillion yuan and 4 trillion yuan.

A new round of large-scale tax and fee reduction policies will likely be introduced this year to boost the vitality of the real economy. Efforts will also be made to prevent and solve the hidden risks of indebtedness of local authorities.

Monetary policy will remain cautious in 2022, with the main objective being the stabilization of economic growth. There could be one to two RRR reductions in the first half of the year, down 0.5 to 1 percentage point. The LPR is expected to decline slightly this year. But the benchmark deposit rate is unlikely to be lowered.

China’s GDP growth target is expected to be above 5% for 2022. China has set a long-term goal of doubling total economic output and per capita income by 2035. To achieve this goal, the The country’s GDP growth rate is expected to reach 4.8%. on average over the next 15 years until 2035. Given the contraction in demand, the impact on supply chains and the weakening of expectations, it could be difficult for China to reach growth rate of 5% this year without further government support.

The author is Chief Economist of Zhixin Investment, Chairman of Zhixin Investment Research Institute and Chairman of China Chief Economist Forum.

Opinions do not necessarily reflect those of China Daily.

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