China’s National Bureau of Statistics on Tuesday will release its third consecutive disappointing estimate for monthly expansion, as the world’s second-largest economy fell short of the government’s annual growth target of 5.5 percent – already the lowest mark in decades. .
China’s economy avoided contraction in the second quarter, posting 0.4 percent year-on-year growth, before expanding 3.9 percent in the third quarter, in a release delayed during the Communist party congress where Xi Jinping won a third term. in power.
The fourth quarter reading will also be dragged down by the widespread lockdown in the October-December period, followed by last month’s chaos over President Xi’s zero-Covid policy, even as the virus spreads throughout the country.
Here are five things to keep in mind ahead of Tuesday’s release.
What are the chances of a rebound this year for China’s post-zero-Covid economy?
From an economic perspective, investors and markets will focus more on the brighter prospects this year than last year’s disappointment.
The World Bank forecasts full-year growth of 2.7 percent for China’s economy in 2022, followed by 4.3 percent this year. Some of China’s largest provinces are projecting growth of 5 to 6 percent, and the government’s official growth target, traditionally announced at the annual session of the National People’s Congress in March, is likely to be 5 percent or higher.
“The exit from the zero-Covid policy is faster than expected,” said Larry Hu, head of China economics at Macquarie. “The dramatic U-turn suggests a deeper economic contraction in the fourth quarter but a reopening and faster recovery in 2023.”
Will Xi’s new team prioritize growth over risk reduction?
For nearly a decade, vice premier Liu He, China’s retired economic czar and a close confidant of Xi, has insisted on containing financial risks, even at the cost of damaging traditional economic engines such as the property and technology sectors.
China’s Prime Minister, Xi protégé Li Qiang, now has an opportunity to address this imbalance and revive the economy. Recent signals from senior Communist Party officials – including high-level cadre visits to Jack Ma’s two companies Alibaba and Ant Group – have suggested the two-year crackdown on the tech sector is finally coming to an end.
Are efforts to boost the property sector creating the desired effect?
The Xi administration will want to support a consumption-led revival rather than launch a credit-driven and ultimately unsustainable investment binge.
But this is unlikely if the long decline of the property sector, the source of household wealth, is not stable. Year-on-year property sales have not increased since the second quarter of 2021 and were down more than 50 percent in the second quarter of last year.
In recent weeks, financial officials have quietly limited leverage given to reducing the bank’s exposure to the sector. The rule eventually made one of the country’s biggest developers, China Evergrande, default.
Like many Chinese property developers, Evergrande financed the project through presales. But as liquidity dries up in the sector and projects stall, homeowners worry they will lose large down payments, eroding buyers’ confidence in the market.
Is the export boom over?
In US dollar terms, China’s exports fell 0.3 percent year-on-year in October, the first decline since the early stages of the pandemic in 2020. November and December fell, 8.7 percent and 9.9 percent, respectively, even more. dramatic.
Overseas consumer demand, which supported China’s economy through the pandemic, has weakened and is unlikely to recover. That will make it harder for the government to reduce high youth unemployment, which has risen from 12.3 percent to 17.1 percent in the past two years.
China’s population has peaked?
A long-term threat to China’s economic prosperity is its rapidly declining demographic profile. Any hope of overtaking the US as the world’s largest economy, let alone becoming richer on a per capita basis, will be dashed if this trend is not slowed.
China recorded 10.62 million births and 10.14 million deaths in 2021, marking the first years of population decline since the Great Leap Forward famine. That risk is likely to be exacerbated by the surge in Covid-related deaths across the country in the past month.
Preliminary estimates for China’s last 10-year census showed the population had reached a peak in 2020, according to people involved in the process, but were later revised upwards to show a small population increase.
On Saturday, the government estimated that 60,000 people died directly or indirectly from Covid in hospitals. The estimate excludes Covid-related deaths from people who died at home, in care homes or were never tested for the virus.
Officials from China’s Centers for Disease Control and Prevention said that comparing the number of deaths per year before and after zero-Covid would give the best measure of the scale of the tragedy. But an assessment of the impact won’t be made until data for 2023 is available.