China’s Economic Outlook for 2022

by Neeraj Singh Manhas - 12 January, 2022, 12:00 1287 Views 0 Comment

China’s economic outlook has been the subject of major discussion, particularly in recent times. China’s GDP growth accelerated in the first quarter of 2021, reaching a sizzling 18.3 percent. The expected year-average GDP growth of about 8% will be significantly higher than the 2.3 percent reported in 2022, suggesting that China’s economy has recovered from the pandemic in many respects. Looking ahead, China’s economic growth is predicted to decline in 2022, compared to its rate in 2021. The International Monetary Fund (IMF) and the World Bank forecast 5.6 percent and 5.4 percent year-over-year growth, respectively, which are in line with the Chinese Academy of Sciences’ 5.3 percent prediction in its annual Blue Book on the Chinese Economy. However, there are also other factors to be taken into consideration.  As the government confronts a string of coronavirus outbreaks, including the Omicron variant, five million residents of a central Chinese city were confined to their homes, while another megacity shut down all non-essential businesses. Beijing is on high alert as it prepares to host the Winter Olympics next month, implementing a zero-Covid approach that includes targeted lockdowns, border restrictions, and lengthy quarantines.

Despite the fact that these precautions have kept the number of new infections significantly lower than in viral hotspots in the United States and Europe, China is currently experiencing local flare-ups in a number of places. Cobalt mining closures in Zhejiang province, for example, because of Covid-19 outbreaks, are projected to drive up prices even further. The effect, which is a critical component in the creation of automobile batteries, is expected to be felt most strongly by the electric vehicle (EV) industry, with the strain of high costs being passed on to consumers. Similarly, frequent lockdowns and closing of borders would have a major impact on the local livelihood of people, as well as trade within and outside the country. This is particularly worrying, as exports and imports would also be affected. All of these can impact the economy.

The Central Economic Work Conference, which took place from December 8 to 10, 2021, set the tone for economic policy in 2022. The draught economic policies for the Two Sessions in March 2022 will be the outcome of this conference. This is why the meeting is so crucial. Stability is the important word discussed during these. The continued deleveraging of the real estate industry, data compliance for technological corporations, and ESG for employees and the environment are among these measures. Though stability will be crucial in 2022, the government must continue to strive toward the 14th Five-Year Plan’s goals. The growth of technology is the most essential aspect of this. A “proactive fiscal strategy,” according to the conference’s official summary, entails providing more targeted and long-term fiscal incentives and assistance, particularly for micro, small, and medium-sized firms (MSMEs) and individuals. Meanwhile, “prudent monetary policy” will imply maintaining a “reasonable” level of liquidity while avoiding “flooding” the market. Banks will be urged to boost their assistance for the most vital industries and enterprises, such as MSMEs, green businesses, technical innovators, and those that serve the ‘real economy.’ These principles are, in many ways, a continuation of the economic strategy launched in 2021 – the administration has followed a “prudent, flexible monetary policy” since at least late 2020, and has reiterated this phrase numerous times since then.

The CEWC, among other things, emphasised the importance of maintaining the six guarantees’ policies of the Covid era. The six guarantees, first presented by the politburo in April 2020, symbolise the six key areas of the economy and society that must get priority attention and protection in economic policy to achieve post-Covid economic recovery.

The six guarantees are as follows:

  • Assuring job security
  • Providing a basic source of income
  • Providing market entities with security
  • Ensuring food and energy security
  • Ensuring the supply chain’s stability
  • Ensuring the smooth running of grassroots groups and structures

From 2022 onwards, the following would happen: loan support programmes for small and micro-sized businesses will be extended until June 2023. These policies include deferring loan repayments and extending principal and interest payment support, as well as allowing the People’s Bank of China (PBOC) to provide funds to local corporate banks to issue inclusive credit loans (at a 1% incremental balance) to small and micro-sized enterprises, as well as individual industrial and commercial businesses. Microcredit loans should be included in the agriculture and small business lending support plan. Furthermore, the RMB 400 billion relending quota, which was originally set aside to promote small and microcredit loans, can now be given on a rolling basis, with the quota being raised as needed. In addition to the above fiscal support, the measures also point out the need to ease administrative procedures for MSMEs, primarily by: Establishing a national integrated financing credit service platform to provide microfinancing to MSMEs. This will seek to speed up registration for market entities while facilitating administrative punishments, judicial judgments and enforcement, as well as facilitating the sharing of information such as tax and social insurance payments, which can help banks better service MSMEs. To improve the regulations on performance appraisal and due diligence exemption of microcredit loans issued by financial institutions, support financial institutions to issue special financial bonds for MSMEs, and expand the scale of government financing guarantee business for small and micro enterprises and reduce guarantee costs.

Neeraj Singh Manhas
Author is a Director, Indo-Pacific, at Raisina House, New Delhi.

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