China’s GDP in the fourth quarter and full year: Five things to watch

China’s National Bureau of Statistics will release on Tuesday what is likely to be a disappointing third consecutive quarterly expansion estimate, as the world’s second-largest economy falls short of the government’s annual growth target of 5.5 percent — already the lowest in decades. .

China’s economy narrowly avoided contraction in the second quarter, growing 0.4 percent year-on-year, before expanding 3.9 percent in the third quarter, in a postponed statement during the Communist Party congress as Xi Jinping secured a third term. in power.

The fourth-quarter reading was also weighed down by widespread lockdowns in the October-December period, followed by last month’s chaotic abandonment of President Xi’s zero-elimination COVID-19 policy, even as the virus spread across the country.

Here are five things to look for before Tuesday’s release.

What is the potential upside this year for China’s post-zero covid recovery?

From an economic perspective, investors and markets will be more focused on this year’s brighter prospects than last year’s disappointments.

The World Bank expects full-year growth of 2.7 percent for the Chinese economy in 2022, followed by 4.3 percent this year. Some of China’s largest provinces expect 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 has been much faster than expected,” said Larry Ho, chief China economist at Macquarie. “Such a dramatic shift would mean a deeper economic contraction in the fourth quarter but reopening and a faster recovery in 2023.”

Will Xi’s new team prioritize growth over risk reduction?

Nearly a decade ago, Vice Premier Liu He, a retired Chinese economic czar and close confidant of Xi, emphasized containing financial risk, even at the cost of destroying traditional economic engines such as the real estate and technology sectors.

China’s next prime minister, Xi’s protégé Li Qiang, now has an opportunity to correct this imbalance and revive the economy. Recent signals from senior Communist Party officials — including visits by high-ranking cadres to Jack Ma’s companies Alibaba and Ant Group — have indicated that their two-year crackdown on the tech sector is finally coming to an end.

Are the efforts made to boost the real estate sector achieving the desired results?

The Xi administration will want to support a consumption-led recovery rather than unleash another credit-driven and ultimately unsustainable investment opportunity.

But this is unlikely if the long decline in the real estate sector, the source of most of the family wealth, does not stabilize. Real estate sales have not increased year on year 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 introduced to reduce banks’ exposure to the sector. The rules eventually prompted one of the country’s largest developers, China Evergrande, to default.

As with many Chinese real estate developers, Evergrande has funded its projects with pre-sales. But as liquidity dried up across the sector and projects stalled, homeowners worried they could miss out on 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 such decline since the early stages of the pandemic in 2020. The declines in November and December were 8.7 percent and 9.9 percent, respectively. dramatic.

Overseas consumer demand, which has supported the Chinese economy during the epidemic, is weakening and is unlikely to recover soon. This will make it difficult for the government to reduce the high youth unemployment rate, which has risen from 12.3 percent to 17.1 percent over the past two years.

Has China’s population peaked?

A long-term threat to China’s economic prosperity is its rapidly deteriorating demographics. Its hopes of overtaking the United States as the world’s largest economy, let alone becoming rich on a per capita basis, will fade if the trend cannot be slowed.

China recorded 10.62 million births and 10.14 million deaths in 2021, putting it on the cusp of its first year-on-year population decline since the Great Leap Forward famine. This risk will be exacerbated by the increase in Covid-related deaths across the country in the past month.

Preliminary estimates from China’s last 10-year census showed the population peaked in 2020, according to people involved in the process, but were ultimately revised upwards to show a small population increase.

On Saturday, the government estimated that 60,000 people had died directly or indirectly as a result of Covid in hospitals. The estimate omitted Covid-related deaths of people who died at home, in care homes, or were never tested for the virus.

Officials from the Chinese Center for Disease Control and Prevention said annual comparisons of total deaths before and after Zero Covid would provide the best measure of the true scale of the tragedy. But assessing their impact will not be possible until 2023 data are available.

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