BEIJING — Chinese leaders are under pressure to boost sagging economic growth as they try to contain coronavirus outbreaks ahead of next month’s Winter Olympics in Beijing.
The world’s second-largest economy grew 8.1% last year, but activity fell sharply in the second half of the year as the ruling Communist Party forced China’s vast property sector to reduce mounting debt, according to reports. official data released on Monday.
Growth fell to 4% from a year earlier in the last three months of the year, fueling expectations that Beijing may need to cut interest rates or stimulate the economy with more spending. in the construction of public works.
This crisis is likely to worsen, leading to “more aggressive measures to spur growth,” Nomura’s Ting Lu and Jing Wang said in a report.
On Monday, China’s central bank cut its interest rate for medium-term loans to commercial banks to the lowest level since early 2020, when the coronavirus pandemic began.
Asian stock markets ended the day on a mixed note following the double announcements. China’s benchmark Shanghai Composite Index gained 0.6% while the Hang Seng in Hong Kong lost 0.7%. The Nikkei 2225 in Tokyo rose 0.7%.
Continued weakness in the Chinese economy has potential global repercussions, depressing demand for steel, consumer goods and other imports.
China rebounded quickly from the pandemic, but activity weakened last year as Beijing tightened controls on borrowing by property developers, triggering a construction slump that is supporting millions of jobs. This made consumers nervous about spending and investors anxious about possible developer defaults.
Consumer spending suffered after authorities responded to virus outbreaks by blocking most access to cities, including Tianjin, a port and manufacturing hub near Beijing, and imposing travel controls in other other regions.
Their “zero COVID strategy” aims to prevent the virus from entering China by finding and isolating every infected person. That has helped keep case numbers low, but is depressing consumer activity and causing traffic jams at some ports.
The ruling party has tightened law enforcement ahead of the start of the Winter Games on Feb. 4, a high-profile project. Athletes, journalists and Games officials are required to stay in closed areas and avoid contact with strangers.
Growth in consumer spending, the main driver of economic growth, fell to 1.7% year on year earlier in December, from 3.9% the previous month.
“The prospect this year of a rebound in consumer spending to pre-pandemic levels has certainly faded,” Invesco’s David Chao said in a report. “All eyes are on whether policymakers will evolve their zero-COVID pandemic policies.”
Authorities have urged the public to stay where they are during the Lunar New Year holiday instead of visiting their hometowns. This will reduce the expense of travel, gifts and banquets during the most important family vacations in the country.
Forecasters have cut this year’s growth outlook to 5% due to the debt crackdown and the coronavirus.
“The downward pressure on growth will persist in 2022,” Tommy Wu of Oxford Economics said in a report.
Compared to the previous quarter, the way other major economies are measured, China’s economy grew 1.4% in the last three months of 2021. That was up from 0.2% in the quarter. previous.
Chinese exports, reported on Friday, jumped 29.9% in 2021 from a year earlier despite a global shortage of semiconductors needed to make smartphones and other goods and imposed energy rationing in the main manufacturing areas.
Exporters benefited from the recovery in global demand while their foreign competitors were hampered by anti-virus controls. But economists say trade growth this year is likely to be weak and export volumes could fall due to congestion at ports.
“With supply chains already stretched to capacity, last year’s increase due to rising exports cannot be repeated,” Julian Evans-Pritchard of Capital Economics said in a report.
Auto sales fell for a seventh month in November, down 9.1% from a year earlier, reflecting consumers’ reluctance to commit to big purchases.
Chinese leaders are trying to steer the economy towards more sustainable growth based on domestic consumption rather than exports and investment and to reduce financial risk.
In mid-September, factories in some provinces were ordered to close to meet official targets for reducing energy use and energy intensity, or the amount used per unit of output.
One of the country’s biggest developers, Evergrande Group, is scrambling to avoid defaulting on $310 billion owed to banks and bondholders. Small developers have collapsed or defaulted on their debts after Beijing cut the amount of borrowed money they can use.
Chinese officials have tried to reassure investors of the risks of broader problems, saying any impact on loan markets can be contained. Economists say a possible default by Evergrande should have little effect on global markets.
National Bureau of Statistics (in Chinese): www.stats.gov.cn