China fires up growth engines under economic "triple pressure"

Aerial panoramic photo taken on Dec. 5, 2021 shows the Yangpu Bonded Port Area in Yangpu, south China's Hainan Province. (Xinhua/Pu Xiaoxu)

China's year-on-year economic growth in 2021 was the best in around a decade, although a complicated external environment and the evolving COVID-19 epidemic continued to weigh on the world's second-largest economy.

Gross domestic product (GDP) grew by 8.1 percent year on year last year, outstripping the government's target. However, there are still challenges on the horizon, with sporadic COVID-19 cases causing slower growth in the closing months.

Chinese authorities have underscored "triple pressure" -- shrinking demand, supply shocks and weakening expectations -- and prioritized stability in its economic work for 2022 in a tone-setting economic meeting.

Analysts remain optimistic about China's economic outlook as the country revs up its engines to shore up growth.

PRO-GROWTH POLICIES

Recent moves from China's monetary and fiscal authorities have shown clear signals of their endeavors to prop up the recovery.

The People's Bank of China, the country's central bank, has vowed to open the monetary-policy toolbox wider, maintain stable overall money supply and avoid a collapse in credit. It also demands front-loading measures in addressing market concerns.

On Monday, the central bank cut the interest rates of medium-term lending-facility loans and reverse repos by 10 basis points. On Thursday, the one-year loan prime rate (LPR) dropped 10 basis points to 3.7 percent, while the over-five-year LPR, on which many lenders base their mortgage rates, was lowered by 5 basis points to 4.6 percent.

"Weak expectations exposed by the current downward pressure is the top problem among the triple-fold pressure," said the China Merchants Securities in a research note, pointing out that the reduction in interest rates has sent a strong signal to raise business expectations and stabilize employment.

To support micro, small and medium-sized businesses, which contribute to over 80 percent of the country's employment, China has decided to extend tax and fee cut measures to the end of 2023, according to an executive meeting of the State Council.

"Infrastructure investment has shown signs of acceleration, and we also expect further tax and fee reductions and transfer payments," said the China International Capital Corporation (CICC) in a report.

CONSUMPTION TO FURTHER RECOVER

China's retail sales of consumer goods took a hit in 2020, but rebounded to a milestone of 44.08 trillion yuan (about 6.93 trillion U.S. dollars) in 2021, said Ning Jizhe, head of the National Bureau of Statistics.

Sporadic COVID-19 cases emerging in several cities have spurred fears of weaker consumption during the coming Chinese Lunar New Year in February, a traditional season for travel and shopping.

CICC's survey showed an increasing intention among Chinese people to visit their hometowns during the holiday.

The transport ministry forecast that 1.18 billion passenger trips will be made during this year's Lunar New Year travel season, up 35.6 percent year on year.

Ming Ming, a chief economist with CITIC Securities, said the "immunity" of the consumption and services industries in China is increasing.

"Though the epidemic still disrupts those sectors, the impact is becoming more manageable," Ming said. "China has balanced economic development and epidemic prevention under a more precise epidemic control."

According to a study by the global audit and consultancy firm KPMG, China will maintain a strong appetite for consumption in 2022.

"In the medium to long term, China's continued efforts to drive urbanization, implement common prosperity policies, and expand the coverage of pensions, health insurance, and other social-welfare programs will continue to serve as pillars of consumption growth and turn consumption into the main driver of the country's economy," the report said.

EXPORTS TO SUSTAIN MOMENTUM

Strong exports have bolstered China's recovery in 2021. It expanded by 21.2 percent year on year to reach 21.73 trillion yuan. Net exports contributed 20.9 percent to the country's GDP growth last year.

KPMG noted that logistical challenges, such as a lack of containers, port congestion, and higher freight costs, will constrain China's exports in the near term.

It also predicts a moderation in China's export growth this year as demand in advanced economies has continued to shift from goods to services and a higher base effect.

KPMG said, however, that China's export growth would remain at a robust level.

"In 2022, we estimate that continued global economic recovery will encourage enterprises to increase their capital expenditures, which will likely boost China's exports of machinery, electrical equipment, electronic products and vehicle parts," said KPMG.