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How China will keep stable growth in 2022

By Lian Ping | China Daily | Updated: 2022-01-24 09:48
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According to data of the first 11 months of 2021, the amount of fixed asset investment in industries varied a lot, with that in infrastructure flat, in manufacturing strong and in housing resilient. Driven by favorable government policies, fixed asset investment in infrastructure and manufacturing will rise this year.

The newly added special bond of 1.46 trillion yuan ($230 billion) for 2022 was launched late last year. Meanwhile, credit lending will be increased and more quality projects will be approved. New types of infrastructure and urbanization projects, major transportation and water conservancy construction projects, high-end manufacturing and "common prosperity" will be focuses for fixed asset investment this year.

Fixed asset investment will continue to serve as the "ballast stone "for China's stable economic growth in 2022, with infrastructure and manufacturing investment working as the main drivers. It is expected that overall fixed asset investment will increase by 6.5 percent year-on-year in 2022, of which infrastructure investment will increase by 8 percent on a yearly basis, manufacturing investment by 8 percent and real estate investment by 4.5 percent.

Policies in the property market may focus more on market expectations and growth rates in 2022.More emphasis will be placed on meeting homebuyers' reasonable needs. In this sense, more liquidity will be provided to qualified property developers, with development loans, bonds and leasing credit marginally improved.

Differentiated policies will be adopted in cities in the property sector, especially for presale mechanisms. More land supply may be provided in some second-tier cities. Specifically, sales of commercial properties will slow in 2022.There will be less supply in the land market in general while prices are likely to go up. New construction may bottom out and the growth rate of real estate investment will further slow down. Housing prices may contract in the first few months but go up in the latter half of the year, and investment in real estate development is expected to increase by 4.5 percent year-on-year in 2022.

There are more factors that will prop up the rapid recovery of China's consumption sector in 2022.Retail sales of social consumer goods are expected to return to the pre-COVID levels.

As the chip shortage issue has been gradually resolved, production in many countries and the global supply chain will be further improved, driving the recovery in auto sales. While the central authorities will adhere to the principle of "housing is for living in, not for speculation", Chinese people's reasonable housing credit needs can be met, which will help improve consumption in certain areas.

The job market remains stable, helping increase people's disposable incomes. In the first three quarters of 2021, disposable income per capita in China increased by 9.7 percent year-on-year, which was up by 14.8 percent compared with the data in the first three quarters of 2019.

Stability is one of the keywords for 2022, according to the tone-setting Central Economic Work Conference held in late 2021. Taking into consideration the uncertainties of the COVID-19 contagion and inflation, overall consumption is expected to grow by 7 percent year-on-year in China this year.

China's exports will continue to demonstrate strong resilience in 2022 despite a marginal slowdown in the growth rate. Europe and the United States will continue to show demand for Chinese products while ASEAN economies will show more demand for intermediate products amid their economic recovery. Foreign exchange rate developments and improved sea freight markets may stabilize exports. Therefore, China's exports may grow by 10 percent year-on-year in 2022.

China's demand for imports will increase steadily in 2022. Demand for imported primary energy products and other bulk commodities will remain steady. Supplies of energy and primary products will be limited. Therefore, commodity prices will not fall back in the short term. Economic and trade relations between China and the US are likely to improve in 2022, which will lead to more US imports this year. Import growth is expected to slow to an annual growth rate of 9 percent this year.

Rising pork prices may be a major driver of the upswing in CPI(consumer price index) in the second half of 2022-a trend that can be consolidated by the end of the first quarter this year. But pork prices will not reach the peaks seen in 2019.

Reform of the electricity tariff system is expected to have a certain impact on prices in downstream sectors. As energy prices and carbon trading costs will be included in power prices, the final product price will also move up accordingly. It is hardly possible for oil prices to fall sharply in 2022. Combined with the accelerated recovery in consumption, the nonfood CPI may fluctuate at a high level.

The CPI is expected to rise steadily after the first quarter of 2022 with the average annual growth rate of the CPI projected to come in at around 2.8 percent this year. The average annual growth rate for the PPI (producer price index) is expected to stand at around 3.1 percent, with the gap between the CPI and PPI readings likely to reverse in the middle of the year.

It will be difficult for the renminbi exchange rate against the US dollar to continue to strengthen in 2022, and it should mainly fluctuate between 6.2 and 6.7. China's monetary policy is stable and the objective of stabilizing growth props up the fundamentals of the country's economic growth, thus supporting the yuan's current exchange rate.

However, there are factors that may exert depreciation pressure on the currency. Data show that China's GDP grew 8.1 percent in 2021 and is expected to grow 5.7 percent in 2022, and that for the US will be 5.6 percent and 4 percent, respectively. The narrowing of the economic growth gap between China and the US may support the strengthening of the US dollar.

The US Federal Reserve will start a monetary tightening cycle. China will also cut its RRR(reserve requirement ratio) and LPR (loan prime rate) to lower financing costs in the real economy. The gap between the 10-year bond yields in China and the US will further contract. In the first half of 2022, it is highly probable that the US dollar will strengthen amid fluctuations, while the renminbi will face downward pressure for some time.

Fiscal policy will remain active in 2022, and the budget deficit rate may be set at around 3.2 percent. The focus of fiscal policies will be on ensuring the growth of market entities and stabilizing incomes and the job market. Small, medium- and micro-sized enterprises will attract the most attention. Expenditures on education, social security, employment and medical care are expected to increase noticeably. The value of newly issued local government special bonds will increase slightly to between 3.8 trillion yuan and 4 trillion yuan.

A new round of large-scale tax and fee reduction policies will likely be introduced this year to boost vitality in the real economy. Efforts will also be made to prevent and resolve the hidden debt risks of local governments.

Monetary policy will remain prudent in 2022, with stabilizing economic growth being the primary goal. There may be one to two RRR cuts in the first half of the year, down by 0.5 to 1 percentage point. The LPR is likely to decline slightly this year. But it is unlikely that the benchmark deposit rate will be lowered.

The target for China's GDP growth should be set above 5 percent for 2022. China has set the long-term goal of doubling total economic output and income per capita in 2035. To achieve that goal, the country's GDP growth rate should come in at 4.8 percent on average over the next 15 years till 2035. In light of the contracting demand, impact on supply chains and weakening expectations, it may be difficult for China to attain the 5 percent growth rate this year without more government support.

The writer is chief economist of Zhixin Investment, president of the Zhixin Investment Research Institute and president of the China Chief Economist Forum.

The views don't necessarily reflect those of China Daily.

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