China’s fourth-quarter and full-year GDP: five things to watch
China’s National Bureau of Statistics will on Tuesday release what is likely to be its third consecutive disappointing estimate for quarterly expansion, as the world’s second-largest economy falls well short of the government’s annual growth target of 5.5 per cent — already the lowest mark in decades.
The Chinese economy narrowly avoided contraction in the second quarter, posting 0.4 per cent year-on-year growth, before expanding 3.9 per cent in the third quarter, in a release that was delayed during the Communist party congress where Xi Jinping secured a third term in power.
The fourth-quarter reading will also have been dragged down by widespread lockdowns in the October-to-December period followed by the chaotic abandonment last month of President Xi’s contentious 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 this year for the Chinese economy’s rebound 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 is projecting full-year growth of 2.7 per cent for the Chinese economy in 2022, followed by 4.3 per cent this year. Some of China’s largest provinces are projecting growth of 5 to 6 per cent, 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 per cent or higher.
“The exit from the zero-Covid policy has been much faster than expected,” said Larry Hu, chief China economist at Macquarie. “Such a dramatic U-turn implies deeper economic contraction in the fourth quarter but faster reopening and recovery in 2023.”
Will Xi’s new team prioritise growth over minimising risk?
For almost a decade, vice-premier Liu He, China’s retirement-bound economic tsar and close confidante of Xi, has emphasised the containment of financial risks, even at the cost of damaging traditional economic engines such as the property and technology sectors.
China’s incoming premier, Xi protégé Li Qiang, now has an opportunity to redress this imbalance and revive the economy. Recent signals from senior Communist party officials — including visits by high-level cadres to Jack Ma’s two companies Alibaba and Ant Group — have suggested that their two-year crackdown on the technology sector is finally coming to an end.
Are efforts to boost the property sector making their intended effect?
Xi’s administration will want to support a consumption-led revival rather than unleash yet another credit-driven and ultimately unsustainable investment binge.
But this is unlikely if the long decline of the property sector, the source of most household wealth, is not stabilised. Year-on-year property sales have not risen since the second quarter of 2021 and fell more than 50 per cent in the second quarter of last year.
In recent weeks, financial officials have quietly relaxed leverage restrictions introduced to reduce banks’ exposure to the sector. The rules ultimately pushed one of the country’s biggest developers, China Evergrande, into default.
As with many Chinese property developers, Evergrande funded its projects with presales. But as liquidity dried up across the sector and projects stalled, homeowners worried that they would lose sizeable down payments, wiping out buyers’ confidence in the market.
Is the export boom over?
In US dollar terms, China’s exports fell 0.3 per cent year on year in October, the first such decline since the early stages of the pandemic in 2020. November and December’s declines, of 8.7 per cent and 9.9 per cent, respectively, were even more dramatic.
Overseas consumer demand, which 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 increased from 12.3 per cent to 17.1 per cent over the past two years.
Has China’s population peaked?
A longer-term threat to China’s economic prosperity is its rapidly declining demographic profile. Its hopes of overtaking the US as the world’s largest economy, let alone becoming as wealthy on a per capita basis, will be dashed if this trend cannot be slowed.
China recorded 10.62mn births and 10.14mn deaths in 2021, putting it on the cusp of its first year-on-year population decline since the Great Leap Forward famine. That risk will have been exacerbated by the surge in Covid-related deaths across the country last month.
Initial estimates for China’s last 10-year census showed that the population had 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 have said that year-on-year comparisons of total deaths from before and after the abandonment of zero-Covid will provide the best measure of the true scale of the tragedy. But assessing its impact will not be possible until data for 2023 become available.