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People's Republic of China - Economy

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  • Chinese leaders welcomed thousands of delegates from across the country to Beijing for the start of the National People's Congress. They used the gathering to announce their economic growth target for 2022, setting it at around 5.5 percent. Premier Li Keqiang revealed the figure in a wide-ranging speech on 05 March 2022, the first day of the weeklong event. The International Monetary Fund has predicted that Chinese growth in 2022 will remain in the 4 percent range.

    At a grand ceremony to commemorate the 100th anniversary of the founding of the Communist Party of China (CPC) in Beijing on 01 July 2021, Xi Jinping, general secretary of the CPC Central Committee, solemnly declared the completion of the goal of building China into a moderately prosperous society in all respects. By eliminating extreme poverty, China has won the biggest and toughest battle against poverty in human history, to the benefit of the largest number of people.

    China posted an 8.1 percent GDP growth in 2021, defying market expectations and further cementing the world's second-largest economy's leading position in the global economy's recovery from the still raging COVID-19 pandemic, as major growth drivers, particularly exports, saw remarkable improvements in the face of mounting global challenges. However, a significantly slower GDP growth of 4 percent in the last quarter of 2021, the weakest since the second quarter of 2020, also offered sobering reminders of the growing downward pressure on the Chinese economy, including from shrinking demand, supply chain disruptions and weakening expectations, in addition to risks of the spread of the Omicron variant.

    China's GDP fell by 6.8 percent year-on-year in the first quarter of 2020 amid the COVID-19 pandemic, the National Bureau of Statistics said on 17 April 2020. "According to the preliminary estimates, the gross domestic product (GDP) of China was 20,650.4 billion yuan [about $3 trillion] in the first quarter of 2020, a year-on-year decrease of 6.8 percent at comparable prices", the bureau said in a report. This was the first recorded GDP decrease in China since 1992, when Beijing started to publish official statistics. The monthly report by OPEC projected a severe recession in 2020 due to the COVID-19 pandemic, with China being no exception. As China has managed to contain the spread of the coronavirus, it may experience GDP growth of 1.5 percent, the cartel said, which nevertheless is a huge decline from a growth rate of 6.1 percent in 2019.

    The private sector plays an important role in the economy, as it contributes more than 50 percent of taxes, 60 percent of GDP, 70 percent of technological innovation, 80 percent of urban employment and 90 percent of new jobs and firms.

    Preliminary data from China's National Bureau of Statistics released on 21 January 2019 showed that the growth rate of the world's second-largest economy expanded by 6.6-percent last year the lowest level since 1990. China's fourth quarter gross domestic product grew 6.4-percent, the slowest pace since the 2008 global financial crisis. Although the Chinese economy faced a downward pressure the statistics agency says the growth rate remained steady overall pointing to a near 6-percent on-year increase in industrial output, while retail sales soared by more than eight-percent in December 2018 compared to a year earlier.

    In a speech to opening session of the annual National People's Congress at Beijing's Great Hall of the People 05 March 2017, Premier Li Keqiang set the growth target for the world's second-largest economy at "around 6.5 percent or higher, if possible." That's down from 6.7 percent expansion last year but, if achieved, would be among the strongest globally. He promised more steps to cut surplus steel production that is straining trade relations with Washington and Europe. Li promised to eliminate 50 million metric tons of steel production capacity.

    Research firm Sanford Bernstein, which keeps tabs on sales of movie tickets, cars, mobile phones and Alibaba online transactions in China, has argued that the world’s second-largest economy is actually weaker than it seems. The firm's estimate of China’s third-quarter 2015 growth was 4.1 percent.

    Local officials and the central government both have vested interests in exaggerating their economic performance. Capital Economics, a London-based research group which monitors the Chinese economy, looks at five factors -- electricity output, freight shipments, construction, passenger travel, and cargo volume. They dispute China's claims to narrowly missing its growth target of 7.5 percent. According to these five indicators, China's economic performance closely tracked with official figures until mid-2013. After that, Chinese statistics diverged from the reality of these indisputable numbers. According to these calculations, recent annual growth is closer to 5.7 percent, far below the 6.5 percent which some say is the critical mass for political stability.

    The government’s deleveraging campaign which aims to avert a potentially regime-threatening financial crisis has led to a sharp reduction in investment growth as companies access to credit is cut. In June 2018, China's stock market sank to its lowest level since January 2016. US$2 trillion has been wiped off share values in the first six months of 2018, making China’s stock market the world’s second worst performer after Argentina. This is not yet on the level of the 2015 market meltdown when China’s stock market lost half its value, US$5 trillion. An important difference between today’s bear market and the 2015 version, that this time the selloff in shares seems to be driven by big institutions rather than China’s army of small stock market investors.

    The upsurge in the class struggle, despite workers conspicuously avoiding political slogans, is another major problem for Xi’s regime. While China’s economy is now slowing, many groups of workers have reached breaking point as their wages and working conditions have worsened over recent years.

    Due to the government’s quasi-monopoly control over outbound investment, there is also evidence of coordinated outbound investment. In its 10th Five-Year Plan (2001-05), the government introduced the “go global” directive, which encouraged Chinese companies and funds to invest overseas to acquire resources, technology, and know-how. The directive gained further momentum during the global financial crisis, which provided a rare opportunity to buy undervalued assets in foreign markets. Since 2008, China’s outbound investment has grown steadily and has begun to outpace inbound investment.

    China's economy grew at its slowest pace in six years in the first quarter of 2015, according to data released April 15, 2015, raising fresh concerns over the condition of the world's second largest economy. Growth declined to 7 percent in the first quarter of 2015, down from 7.3 percent in the previous quarter. That is the slowest quarterly growth rate since early 2009 during the aftermath of the global financial crisis. China's ruling Communist Party set a modest target of 7 percent growth for 2015.

    The IMF April 2015 WORLD ECONOMIC OUTLOOK pegged China's growth at 6.8 percent in 2015 and 6.3 percent the following year, a far cry from its ten-year peak of 14% in 2007. These projections had been revised downward by ¼ and ½ percentage point, respectively, as previous excesses in real estate, credit, and investment continued to unwind. The Chinese authorities were expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth, and hence the IMF forecast assumed less of a policy response to the underlying moderation. Ongoing implementation of structural reforms and lower oil and commodity prices were expected to expand consumer-oriented activities, partly buffering the slowdown.

    Many analysts expected economic growth in the fourth quarter of 2014 to slow only slightly from 7.3 percent in the third quarter. The lower figures are a sign that what Beijing calls "the new normal" is here to stay. It meant full-year growth would undershoot the government's 7.5-percent target and mark the weakest expansion in 24 years. Economists advising the government recommended that China lower its growth target to around 7 percent in 2015. That is the slowest pace of growth China has seen since 1990, when the country’s economy was struggling under the weight of sanctions after the brutal crackdown on pro-democracy protesters in Tiananmen Square.

    In late November 2014, the central bank unexpectedly cut interest rates for the first time in more than two years. It has also injected more funds into the banking system and relaxed restrictions to persuade risk-averse banks to lend more. More infrastructure projects were also approved.

    By some measures 2014 was the year that China overtook the United States as the world’s biggest economy. It happened sooner than many expected. According to figures released by the International Monetary Fund, China's total output of goods and services pushed past the United States' total for the first time in 2014. China surpassed Japan to become the world’s second biggest economy in 2010.

    China’s dramatic economic slowdown is explained in large part by the decline in global competitiveness of its manufactured goods as productions costs have increased for China’s facilities. These recent trade figures might be evidence of the irrelevance of the export-based growth model for China, underlining an urge for structural reform in the Communist nation.

    The economic divide between China’s prospering southern regions and lagging northern areas will continue to widen in coming years, with huge implications for growth, debt and policy making, according to Nomura Holdings Inc. Nomura divides northern and southern China by the Qin Mountains and Huai River Line, with 15 provinces and cities in the north, such as Beijing and Hebei, and 16 in the south, including Shanghai and Jiangsu.

    The gap between the north and the south has grown over the past decade, with southern provinces benefiting from export dependence and the internet boom, while resource-rich northern regions were dragged down by slower fixed investment, falling commodity prices and population migration. Nomura estimates that northern China’s share of the national economy shrank to 35.2% in 2020 from 42.9% in 2012. Low birth rates and net population outflows from the north also suggest the divide may persist in coming years. Nomura estimates the average annual population growth for the north was only 0.3% from 2017 to 2019, well below 0.8% growth in the south.

    The regional gap is expected to worsen as China looks to reduce carbon emissions, cut economic dependence on the property sector and impose financial discipline on local governments, Nomura said, increasing the risks of systemic financial crises and social instability. The economy in the north is historically more investment-driven and relies more on heavily-polluting industries compared to the south.

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    Page last modified: 11-03-2022 19:53:49 ZULU