China’s economy grows 8.1% in 2021, slows in second half
China’s economy grew 8.1% in 2021, but Beijing faces pressure to boost activity after a sharp fall in the second half of the year as the ruling Communist Party forced its vast real estate sector to reduce mounting debt.
Growth in the world’s second-largest economy fell to 4% year on year in the last three months of 2021, government data showed on Monday. That was down from 4.9% in the prior quarter and a jaw-dropping 18.3% in the first three months of 2021.
Forecasters warn that weakness will persist this year due to new coronavirus outbreaks and the debt crackdown. This has potential global repercussions, depressing Chinese demand for steel, consumer goods and other imports.
China rebounded quickly from the coronavirus pandemic, but activity slowed as Beijing tightened controls on property sector borrowing, triggering a construction slump that is supporting millions of jobs. This has fueled consumer jitters about spending and financial markets anxiety over possible developer defaults.
“The downward pressure on growth will persist in 2022,” Tommy Wu of Oxford Economics said in a report. He said the government would likely launch “policy support” to keep annual growth above 5%.
Growth in consumer spending, the main driver of the economy, plunged to just 0.2% in December, from 3.9% the previous month. Investment growth in factories, real estate and other fixed assets slowed to 1.7%, down from the full-year level of 4.9% as developers canceled or postponed construction projects .
Deepening weakness towards the end of 2021 prompted Beijing to cut interest rates or pump money into the economy through spending on public works. The World Bank and private sector forecasters have cut growth prospects for this year, but to levels above those of most other major economies.
On Monday, China’s central bank cut its rate for medium-term loans to commercial banks to its lowest level since 2020 during the pandemic.
The coronavirus outbreaks have prompted Chinese leaders to impose travel controls or outright lockdowns on cities like Tianjin, a port and manufacturing hub near Beijing. This hurt spending in service industries. Industry analysts say processor chip manufacturing and other areas could feel the impact if the disruption lasts longer than a few weeks.
“Economic momentum remains weak amid repeated virus outbreaks and a struggling real estate sector,” Julian Evans-Pritchard of Capital 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.
Chinese exporters have benefited from the revival of global consumer demand at a time when their overseas competitors are hampered by virus checks. 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 boost from surging exports cannot be repeated,” Evans-Pritchard said.
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.
One of the country’s biggest developers, Evergrande Group, is scrambling to avoid defaulting on $310 billion owed to banks and bondholders.
This has fueled fears about other developers, although Chinese officials have tried to reassure investors that any impact on credit markets can be contained. Economists say a possible default by Evergrande should have little effect on global markets.
Factories in some provinces have been ordered to close in mid-September to meet official targets for energy consumption and energy intensity, or the amount used per unit of output.
Asian financial markets were mixed on Monday after China’s interest rate cut and data release. The Shanghai Composite Index gained 0.6% while Hong Kong’s Hang Seng fell 0.6%.
National Bureau of Statistics (in Chinese): www.stats.gov.cn