New government data showed significant growth in the world’s second largest economy in 2021. However, the pace slowed towards the end of the year. This development was used by experts as an explanation for the interest rate cut: “The government is obviously worried about the economy slipping, especially with regard to the economic risks of the Omicron variant,” commented analysts at Commerzbank. The central bank could loosen monetary policy further, even if its room for maneuver is limited in view of the debt problem.
The Chinese economy has recently been slowed down by several developments. On the one hand, the People’s Republic is pursuing a strict corona course, which is intended to keep infections close to zero even in the omicron wave. In addition, the country’s important real estate market is weakening due to the financial problems of several large real estate companies. The central bank’s options are limited above all by the considerable debt of many public companies and the provincial governments.
China’s economy is growing strongly – but the momentum is flagging
According to official figures, China’s economy grew by 8.1 percent in the past year. However, as the Beijing Statistics Office announced on Monday, growth continued to weaken in the fourth quarter. Compared to the previous year, the second largest economy grew by four percent between October and December. The growth in gross domestic product was therefore slightly better than analysts had expected on average. In the third quarter, growth was still 4.9 percent – after record growth of 18.3 percent in the first and 7.9 percent in the second quarter.
The strong increase over the year can be explained primarily by the low basis for comparison due to the pandemic in the previous year. With a zero-Covid strategy, mass testing, quarantines and entry restrictions, the most populous country got the virus under control faster than most other countries. Nevertheless, economists are now predicting a year with significantly less momentum.
Most recently, it was mainly the strong exports that supported China’s growth. But foreign trade alone cannot compensate for other problems in the long run: The real estate market has cooled off – driven by uncertainties such as the crisis surrounding the real estate group Evergrande, which has a debt of more than 300 billion US dollars. The government continues to work to reduce the high levels of corporate debt. Increased raw material costs and energy shortages have also recently had a negative impact on the economy.
The further course of the pandemic is likely to be decisive for economic development this year. As countries around the world have begun to live with the coronavirus, Beijing is going into lockdown more than ever. Nationwide, only around 150 cases were reported every day – in a country with 1.4 billion people. But aside from China’s lack of independent reporting on regulatory failures, the government is concerned about the spread of the highly contagious omicron variant. According to official information, the variant was first discovered in China last week.
Experts fear that there could be serious consequences for China’s economic development if there were lockdowns in many regions nationwide because of the omicron variant, which would interrupt supply chains and paralyze factories. The US investment bank Goldman Sachs warned that a major omicron eruption could have serious consequences for China’s economy – and last week cut its forecast for China’s growth to 4.3 percent in the current year. The World Bank also recently reduced its forecast from 5.3 to 5.1 percent.
Chinese economists from the Academy of Social Sciences (CASS) proposed to the government in December a growth target of “more than five percent” for this year.
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BEIJING (dpa-AFX)
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