China on Monday will announce its estimates for the growth of gross domestic product for the fourth quarter and full year at a critical economic and political time for President Xi Jinping, who holds an unprecedented third term as head of the Communist Party, army and government seeking.
The party’s politburo last month stressed the importance of stabilizing the economy and financial system, led by a downturn in the real estate sector. But it showed no intention of abandoning the policies that led to defaults at Evergrande and other major developers.
To find a balance between stability and fiscal discipline, Xi’s economic team, led by Deputy Prime Minister Liu He, will test over the coming months.
Here are five things to look for when selecting yours.
Will quarter-on-quarter growth be close to zero or more than 1 percent?
On a quarterly basis, China’s economy grew just 0.2 percent in both the first and third quarters of last year and 1.2 percent in the second quarter.
The quarter-on-quarter figure is a much more accurate measure of the economy’s health than year-on-year headline figures, which sawed off due to the Covid-19 pandemic and then hit back.
Full-year growth for 2021 should easily exceed the official target of 6 percent. But another low quarter-on-quarter reading will put pressure on Liu and the central bank, which he actually controls as head of the governments’ Financial Stability and Development Committee, to do more to promote growth.
Will the outlook for the real estate sector continue to deteriorate or stabilize?
Property prices in China’s 70 largest cities fell 0.3 percent in November compared to October – the largest monthly decline in nearly six years.
This is in line with Xi’s promise to “common prosperity”To one of the world’s most unequal countries in terms of wealth distribution. But it can also cause unintended economic consequences if they fall too fast.
The sector is estimated to account for more than one quarter of total economic output. Its misery over the past few months has been reflected in the slowdown in fixed asset investment, which increased by 5.2 per cent year-on-year in the January-November period.
It was slower than projected and well below the 7.3 percent year-to-date figure for September, when it became clear that leverage restrictions imposed on developers in 2020 would likely cause Evergrande to fail.
Is the party’s zero Covid strategy sustainable or will it cause unacceptable costs to the economy?
China’s export sector has performed strongly since the coronavirus was effectively curbed in the first half of 2020. Periodic restrictions in key manufacturing areas and at large ports to accommodate local groups did not halt overall export growth, which was consistently strong.
But that could change as the more portable Omicron variant threatens to cause more and more constraints, which has dampened consumer sentiment along with the property downturn. Retail sales increased by just 3.9 percent year-on-year in November, growing well below consensus projections of 4.7 percent.
This week, Xi’an, a provincial capital with a population of 13 million, and two smaller cities are under complete lockdown. Two other major cities, Tianjin and Shenzhen, enforce partial restrictions to facilitate city-wide testing.
However, the party is unlikely to relax its uncompromising approach to pandemic control until a party congress – which is likely to convene in October or November – formally endorses Xi’s third term in power.
Will the increasing pressure on China’s economy lead to a more powerful monetary policy response?
For the first time since April 2020, China’s central bank has lowered its benchmark for a one-year loan’s prime rate, but by only 5 basis points. Nor has it changed the five-year benchmark used to price mortgages.
The People’s Bank of China has chosen to use targeted reserve rate cuts in an effort to target credit sectors of the economy, such as agriculture and high-tech manufacturing, rather than fleeing to “flood-like stimulus” that its efforts will undermine in recent years to keep in check high debt levels.
Will China’s demographic peak even earlier than expected?
The National Bureau of Statistics is likely to release its preliminary estimate for the country’s 2021 birth rate – or number of births per 1,000 people. It dropped to 8.5 in 2020 from 10.5 the previous year, the first time the rate has fallen below 10.
China recorded 12 million births, its lowest total in nearly 60 years, in 2020.