China is forecast to grow by 8.1% in 2021, but the wind is blowing Reuters

By Kevin Yao and Gabriel Crossley

BEIJING (Reuters) – China’s economy rebounded in 2021 with the best growth in a decade, supported by strong exports, but with signs of weakening consumption and declining ownership, there is a slowdown in the need for more policy support.

Growth in the fourth quarter was a year-and-a-half low, with government data on Monday showing central banks moving to boost the economy and reducing a key lending rate for the first time since early 2020.

The world’s second-largest economy is struggling with the real estate sector, as well as small-scale COVID-19 outbreaks that could hit its factories and supply chains.

Several Chinese cities were on high alert before the New Moon holiday travel season, as the Omicron variant reached more areas including the capital, Beijing.

The economy grew by 8.1% last year, the best expansion since 2011, and was 8.0% faster than expected. The pace was much higher than the government’s target of “above 6%” and a revised 2.2% growth by 2020. The economy experienced its weakest growth in 44 years in 2020, but it has recovered faster than other major economies.

Gross domestic product grew by 4.0% in the last quarter, according to data from the National Statistics Office (NBS), which is faster than expected but still at its slowest pace since the second quarter of 2020. Growth was 4.9% in the third quarter.

“Today, the downward pressure on the Chinese economy is still quite high, and the growth of employment and income growth for residents is limited,” NBS chief Ning Jizhe told a news conference.

Quarter-on-quarter GDP grew by 1.6% in October-December, up 1.1% on the previous quarter and 0.7% on the revision forecast.

China’s economy started strong in 2021, but economists expect growth to slow in the coming months.

The central bank unexpectedly cut its borrowing costs for medium-term loans for the first time since April 2020, and as a result, some analysts hoped to ease the policy this year to protect the risk of higher developer defaults.

The People’s Bank of China said interest rates on some financial institutions (MLF) worth 700 billion yuan ($ 110.2 billion) in medium-term lending services were down 10 percentage points from 10 basis points to 2.85%. He also cut the 7-day reverse break rate.

“The economic momentum remains weak as it struggles with the recurring virus outbreaks and the real estate sector. Therefore, we expect another 20 bps reduction in PBOC policy rates in the first half of this year,” Capital Economics analysts said in a statement.

But Nomura said in a statement that the gap left for future rate cuts this year is small: “We expect another 10 bp rate cut before mid-2022.”

Global stock markets tumbled on Monday and benchmark Dalian and Singapore’s iron futures fell following signs of economic weakness from China’s major steelmaker.

Speaking at a video conference at the World Economic Forum on Monday, President Xi Jinping said the overall boost to China’s economy was good and that countries needed to strengthen policy coordination and prevent the world economy from re-emerging.

Adding to another long-term concern for the economy, the birth rate in mainland China fell by 7.52 per 1,000 population in 2021 to 2021, the NBS data also showed on Monday, extending a downward trend in Beijing last year to allow couples to start. up to three children.

PROPERTY, RETAIL SALES MALDOA

China’s real estate market has slowed in recent months as regulators step up their campaign to reduce high debt rates, affecting the defaults of some heavily indebted companies.

Real estate investment fell 13.9% in December from a year earlier, and fell at the fastest pace since early 2020, according to estimates based on official data from Reuters. Investment grew by 4.4% in 2021, the slowest since 2016.

Weak consumption data also clouded forecasts, as retail sales fell in December, forecasting only a 1.7% rise from a year earlier, the slowest pace since August 2020.

“The biggest challenge for policymakers this year is how to stabilize the economy in the 5-5.5% range behind the dynamic zero-COVID policy,” said Nie Wen, chief economist at the Shanghai Hwabao Trust.

Industrial production was a bright spot, rising 4.3% year-on-year in December from a 3.8% rise in November and better than a 3.6% rise in a Reuters poll.

Chinese refinery production set a new record in 2021, as did aluminum and coal production.

Investments in fixed assets rose by 4.9% in 2021, compared to a 4.8% increase in analysts and a 5.2% increase in the first 11 months of the year.

Shipment of seeds to foreign coronavirus economies was a key driver of China’s growth last year, with net exports accounting for more than a quarter of GDP growth in the quarter and the country’s largest trade surplus since records began in 1950 in 1950.

The large role of net exports in last year’s GDP growth also underscored the relative weakness of other actors. In contrast, net exports led to overall growth in 2018 as the economy relied more on consumption and investment.

However, aid for export growth may not last. It has slowed down the rise in demand for foreign goods and high cost pressures from exporters.