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China's economic engine will run hot in 2021 - but this year there is a risk of cooling down

2022-01-17T13:42:11.895Z


China's economic engine will run hot in 2021 - but this year there is a risk of cooling down Created: 01/17/2022, 02:33 p.m Despite the corona pandemic, China's economy was able to recover in 2021. © Imago Images/Leung Cho Pan China's economy grew strongly in 2021 despite the ongoing corona pandemic. But the Omikron variant could put a damper on growth. Beijing – China's* economy recovered sig


China's economic engine will run hot in 2021 - but this year there is a risk of cooling down

Created: 01/17/2022, 02:33 p.m

Despite the corona pandemic, China's economy was able to recover in 2021.

© Imago Images/Leung Cho Pan

China's economy grew strongly in 2021 despite the ongoing corona pandemic.

But the Omikron variant could put a damper on growth.

Beijing – China's* economy recovered significantly from the Corona lull in the year before in 2021 despite the real estate crisis.

The gross domestic product (GDP) grew by 8.1 percent, as the statistics office announced on Monday in Beijing.

The second largest economic power after the USA thus significantly exceeded the growth of 2.2 percent achieved in 2020.

However, experts assume that the high pace cannot be maintained.

At the end of 2021, the economy only grew by 4.0 percent.

The central bank PBoC has now braced itself against the economic slowdown with an unexpected interest rate cut.

China: President Xi is optimistic

For the first time since April 2020, it capped a reference interest rate for medium-term loans to some financial institutions (MLF). The bottom line was that 200 billion yuan (27.5 billion euros) was pumped into the banking system. "The fact that the PBoC already decided to ease this at the beginning of January shows that the economic downward pressure increased at the end of 2021 and that there is not much room for improvement in the first quarter," says economist Ken Cheung from Mizuho Bank.

China's President Xi Jinping stated that the economy as a whole is characterized by good growth dynamics.

In a difficult global environment, it was possible to keep growth fairly high and inflation relatively low, said the head of state at the online conference "Davos Agenda" of the World Economic Forum (WEF): "We have full confidence in the future of the economy of China.”

China: Booming exports

Consumer prices rose relatively weakly in 2021 at a rate of 0.9 percent. While many central banks in industrialized countries are currently bracing themselves against rapid inflation with a tighter course, the door for monetary easing in China is therefore open. Strong GDP growth was mainly fueled by robust exports in 2021 as global demand for Chinese-made electronics or medical products picked up amid the pandemic. Exports increased by almost a third.

That outweighed the consequences of the real estate crisis, which was triggered by the housing group Evergrande*, which was in financial difficulties.

Jürgen Molnar, investment strategist at the brokerage house RoboMarkets, considers the construction boom in China to be oversized: "So big that some construction projects cannot be completed due to a lack of capital."

Evergrande is currently trying to raise cash by selling assets and shares to pay suppliers and creditors.

The debt drama surrounding the group, which has been dragging on for months, is increasing the pressure on the government to prevent a conflagration in the Chinese real estate and financial markets.

Corona: Lockdowns are weighing on the Chinese economy

"Economic momentum remains weak amid repeated virus outbreaks and a battered real estate sector," said Capital Economics analysts. According to LBBW expert Matthias Krieger, the lockdowns* of entire cities as part of the rigid, if now somewhat adapted, zero-Covid strategy continue to have a negative effect: "This remains a problem for the international supply chains. Because the highly contagious omicron variant is unlikely to go completely unnoticed in China either, and it will keep putting obstacles in the way of the economy there.”

Added to this are the demographic problems of the population of billions: China's birth rate fell to a record low last year despite the abandonment of the one-child policy. The statistics office in Beijing announced that only 7.52 births per 1,000 inhabitants were recorded. This is the lowest value since records began in 1949. Population growth - excluding immigration - was now only 0.034 percent and thus the lowest since 1960.

"While the demographic challenge is well known, the pace of population aging is clearly faster than expected," said Zhiwei Zhang, chief economist at asset manager Pinpoint Asset Management.

"This suggests that China's total population may have peaked in 2021." This also means that the economy's growth potential is likely to decline faster than expected. 

(rtr) *fr.de is an offer from IPPEN.MEDIA.

Source: merkur

All news articles on 2022-01-17

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