China’s National Bureau of Statistics on Tuesday will release its third consecutive disappointing estimate of quarterly expansion as the world’s second-largest economy falls well short of the government’s annual growth target of 5.5 percent, already the slowest in decades. .
China’s economy narrowly avoided a recession in the second quarter, posting annual growth of 0.4 percent before expanding 3.9 percent in the third quarter, in a release delayed by the Communist Party congress where Xi Jinping secured a third term. in power.
The fourth-quarter reading will also be delayed by widespread lockdowns in the October-December period, followed by the chaotic abandonment last month of President Xi’s controversial zero-Covid policy, even as the virus raced across the country.
Here are five things to look out for ahead of Tuesday’s release.
What is the likely upside for China’s economic recovery this year after zero Covid?
From an economic perspective, investors and markets will be more focused on this year’s much brighter prospects than last year’s disappointments.
The World Bank forecasts China’s economy to grow by 2.7 percent in 2022, followed by 4.3 percent this year. Some of China’s largest provinces are forecasting 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 more.
“The exit from the zero-Covid policy was much faster than expected,” said Larry Hu, Macquarie’s chief China economist. “Such a sharp turnaround suggests a deeper economic downturn in the fourth quarter, but a faster reopening and recovery in 2023.”
Will Xi’s new team prioritize growth over de-risking?
For nearly a decade, Vice Premier Liu He, China’s retired economic czar and a close confidant of Xi, has emphasized containing financial risks, even at the cost of damaging traditional economic engines such as the property and technology sectors.
China’s new premier, Xi’s protégé Li Qiang, now has an opportunity to redress this imbalance and reinvigorate the economy. Recent signals from senior Communist Party officials, including visits by high-level staff to Jack Ma’s two companies, Alibaba and Ant Group, suggest their two-year crackdown on the tech industry is finally coming to an end.
Are efforts to promote the property sector having their intended effect?
The Xi administration will want to support a consumption-led revival, rather than unleashing a credit glut and ultimately unsustainable investment.
But that is unlikely unless the long-term decline in the property sector, the source of household wealth, is sustained. Year-over-year real estate sales have not increased since the second quarter of 2021 and fell more than 50 percent in the second quarter of last year.
In recent weeks, financial officials have quietly eased leverage restrictions put in place to reduce banks’ exposure to the sector. The rules eventually pushed one of the country’s biggest developers, China Evergrande, into default.
As with many Chinese real estate developers, Evergrande financed its projects through pre-sales. But as liquidity dried up across the industry and projects stalled, homeowners worried they would lose significant 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 such decline since the early stages of the pandemic in 2020. The declines in November and December were even greater, at 8.7 percent and 9.9 percent, respectively. dramatic
Demand from overseas consumers, which has supported China’s economy through the pandemic, is weakening and unlikely to recover soon. 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.
Has China’s population peaked?
A longer-term threat to China’s economic prosperity is its rapidly declining demographics. Its hopes of overtaking the US as the world’s largest economy, let alone becoming as wealthy per capita, will be dashed if the trend cannot be slowed.
In 2021, China recorded 10.62 million births and 10.14 million deaths, putting it on the cusp of its first year-on-year population decline since the Great Leap Forward famine. That risk will be exacerbated by a spike in Covid-related deaths across the country last month.
Preliminary estimates from China’s latest 10-year census showed the population peaking in 2020, according to people involved in the process, but were ultimately revised upward to show a small population increase.
On Saturday, the government estimated that 60,000 people had died in hospitals directly or indirectly as a result of Covid. The estimate omitted Covid-related deaths for people who died at home, in care homes or were never tested for the virus.
Officials at China’s Centers for Disease Control and Prevention said year-by-year comparisons of total deaths before and after zero Covid was left would provide the best measure of the true scale of the tragedy. However, an assessment of its impact will not be possible until data from 2023 becomes available.