Daily Management Review

Chinese Growth Rate In 2021 Highest In A Decade


Chinese Growth Rate In 2021 Highest In A Decade
The economic growth of China staged a major turnaround in 2021, with the highest rate of growth in a decade which was driven by strong exports. However, there were concerns about the slowing down of the momentum because of falling consumption and a housing slowdown which indicated that there is a need for additional policy support.
Government data released on Monday indicated that growth in the fourth quarter fell to a one-and-a-half-year low, only days after the central bank of the country moved to prop up the economy by cutting a key lending rate for the first time since early 2020.
The world's second-largest economy is grappling with a rapidly cooling real estate market, as well as intermittent small-scale Covid-19 outbreaks that threaten its factories and supply lines.
As the Omicron variant of the coronavirus spread throughout more places in the country, including the capital Beijing, which resulted in a number of Chinese cities being placed on high alert ahead of the Lunar New Year vacation travel season.
Last year, the economy grew at an annual rate of 8.1 per cent, the highest since 2011 and faster than the forecasted rate of 8.0 per cent. The rate was significantly above the government's aim of "over 6 per cent" and the lowered growth rate of 2.2 per cent for 2020. In 2020, the economy grew at its slowest rate in 44 years, but it recovered faster than other major economies.
The National Bureau of Statistics (NBS) reported that GDP increased 4.0 per cent in the fourth quarter, more than predicted but still at its worst pace since the second quarter of 2020. In the third quarter, growth was 4.9 per cent.
"At present, the downward pressure on China's economy is still relatively big, and growth of residents' employment and income is restricted," Ning Jizhe, head of the NBS, told a news conference.
China's GDP increased 1.6 per cent quarter over quarter in October-December, beating predictions of 1.1 per cent and a revised 0.7 per cent increase in the preceding quarter.
The Chinese economy got off to a fast start in 2021, but economists predict that growth will decline in the coming months.
For the first time since April 2020, the central bank unexpectedly reduced the borrowing costs of its medium-term loans, prompting some analysts to predict more policy easing this year to protect developers from growing default risks.
The People's Bank of China said that the interest rate on the one-year medium-term lending facility (MLF) loans worth 700 billion yuan ($110.2 billion) to some financial institutions would be reduced by 10 basis points to 2.85 per cent. The 7-day reverse repo was also shortened.
"Economic momentum remains weak amid repeated virus outbreaks and a struggling property sector. As such, we anticipate another 20 bps of cuts to PBOC policy rates during the first half of this year," said analysts at Capital Economics, in a note.
However, Nomura warned in a statement that the room for further rate reduction this year remained limited. "By mid-2022, we forecast another rate drop of 10 basis points."