Q4 Growth Rate in China Expected to Fall to 3% Range... "Economic Cooling Fully Underway"

Signboard of Evergrande Group headquarters in Shanghai, China (Photo by Yonhap News)

[Asia Economy Reporter Ryu Taemin] Concerns about a downward economic trend are growing as China’s economic growth rate, which soared to the 18% range in the first quarter of last year, is expected to fall to the 3% range in the fourth quarter of last year.

As the National Bureau of Statistics of China is scheduled to announce key economic indicators including the fourth quarter GDP on the morning of the 17th, the market is increasingly weighing the view that China’s GDP growth rate for the fourth quarter of last year will drop to the 3% range.

According to Bloomberg’s compiled forecast, China’s economic growth rate for the fourth quarter of last year is projected at 3.6%, the lowest level in a year and a half since the second quarter of 2020, when the COVID-19 outbreak began. China’s quarterly growth rates last year showed a steep downward curve, rising to 18.3% in the first quarter due to the COVID-19 base effect, then falling to 7.9% in the second quarter and 4.9% in the third quarter. The market predicts this trend will strengthen further this year.

The sharp economic slowdown in China that began in the second half of last year is partly the result of external factors such as the global surge in raw material prices and supply chain bottlenecks. However, there are also many criticisms that the Chinese government’s harsh regulations across various sectors including real estate, big tech (large information technology companies), and education have led to a weakening of growth momentum.

The Hong Kong South China Morning Post (SCMP) analyzed, “China’s economy started off vigorously in 2021, powered by strong exports, but began to lose growth energy in the second half of the year amid ongoing regulations in sectors such as real estate, technology, and education.”

China implemented policies that severely restricted business funding and home purchase loans for real estate companies. This pushed the real estate industry, estimated to account for about 30% of China’s GDP, into crisis. In particular, the default crisis of ‘giant enterprises’ such as Hengda (恒大, Evergrande) has become a major factor undermining the overall stability of China’s economy.

As the crisis in China’s real estate sector, led by Hengda, continues, and with the recent resurgence of COVID-19, significant challenges are expected for China’s economic management this year. US investment bank JP Morgan pointed out in a recent report that “in the short term, the real estate market downturn is the biggest threat to China’s macroeconomy and financial stability.”

Wang Tao (汪濤), UBS’s chief analyst for China, stated in a report, “The greatest uncertainty stems from the trajectory of the COVID-19 situation and related restrictions by authorities,” adding, “China may maintain strict quarantine policies longer than expected, which could lead to more city lockdowns and restrictions on interregional movement.”

Looking at the annual trend, the burden on Chinese authorities to manage the economy is increasing. Bloomberg’s compiled forecast for 2021 economic growth is 8.0%, which aligns with the Chinese government’s conservative early-year target of around 6%.

However, experts say it is reasonable to consider the average annual economic growth rate for 2020 and 2021 as 5.2% to remove distortion effects caused by the COVID-19 shock. From this perspective, China’s economic growth rate can be seen as declining from 6.1% in 2019, the year before COVID-19, to 5.2% in 2020 and 2021.

At the Central Economic Work Conference held in December last year to decide China’s economic operation direction for 2022, “stable growth” was presented as the top priority. It is widely expected that China will set this year’s economic growth target in the 5% range, lower than last year’s “around 6%.” In fact, the Chinese Academy of Social Sciences, a think tank directly under the State Council, publicly recommended on the 6th of last month that the 2022 economic growth rate be forecasted at about 5.3% and that policymakers set a target “above 5%.”

However, with the export growth rate that had driven China’s economic growth expected to slow, and with negative factors such as the real estate market contraction and worsening COVID-19 spread, there is growing speculation that China’s economic growth rate will fall below 5% next year.

Goldman Sachs lowered its forecast for China’s economic growth rate this year to 4.3%, citing the impact of COVID-19. JP Morgan set China’s growth target at 4.9% earlier this month. Macquarie Capital observed in a report that “what policymakers in China should prioritize in 2022 is to maintain the 5% growth floor.”

Attention is also focused on China’s population decline for the first time in 60 years since 1961, when the Great Famine caused by the Great Leap Forward occurred, due to worsening low birth rates and aging. The Chinese government announced the results of the 7th national census last May, reporting a population of 1,411,778,724 as of November 2020. The number of births in 2020 was 12 million, the lowest since 1961.

China experts predict that if this trend continues, the point when the number of deaths in China exceeds the number of births in a year could arrive soon.

This content was produced with the assistance of AI translation services.