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Beijing still confident about 2022 growth outlook

China remains confident with its economic growth outlook for 2021 and 2022 despite various challenges, including recent coronavirus outbreaks and power shortages. For this year, China’s Vice Premier Liu He said that the country’s economic growth would go even beyond its expected target of above 6%.

At a meeting with heads of major business organisations yesterday, government leader Li Keqiang reiterated the positive outlook.

However, most analysts disagree and also the Chinese Academy of Social Sciences (CASS), a top think tank in the country, has called on the government to lower the economic growth target for next year to above 5%.

China set an above 6% GDP growth target for 2021 following the economy’s bounce back from the 6.8% contraction in the first quarter of 2020 due to the Covid-19 pandemic lockdowns.  

The country ended the year with a 2.3% growth. It became the only major economy globally to register an expansion in 2020 amidst the impact of the pandemic on businesses across the world. 

However, China’s GDP growth slowed down from 7.9% in the second quarter to 4.9% in the third quarter of this year, and analysts expressed concern about the country’s recovery.

Challenges ahead for China in 2022

China’s economy has been challenged by various issues, including sporadic coronavirus outbreaks, the government’s recent crackdowns on property, technology, and private tutoring, as well as the power shortages many provinces are experiencing. 

The current energy crisis in China, for instance, has prompted the government to restrict supply to at least 20 provinces, forcing some companies to close down operations and homes to experience blackouts. 

Commenting on the crackdown on various sectors, Eng Teck Tan, Senior Portfolio Manager at asset management firm Nikko AM, explained that this is the country’s proactive way to tackle potential issues that could affect its society. He believes that China will strike a balance between ensuring social cohesion and promoting economic growth. He also expects the country to continue supporting areas it deems strategic for its economy. 

CASS researcher Li Xuesong said that the economic growth target should be set prudently at above 5% to leave a certain leeway and enable parties to focus on reforms and innovation while supporting high-quality development. 

The think tank is forecasting growth in 2022 to be around 5.3% while expecting an urban jobless rate at 5.5% and consumer inflation at about 3%. 

With an eye on the capital markets, Fidelity Interntional portfolio manager Dale Nicholls recommends that investors continue to pay attention to risks and regulatory developments. However, he expects fewer policy surprises in 2022.

In a recent article Nicholls stated that the property sector should be closely monitored for both positive and negative aspects of the market. This is because the sector is a crucial driver of economic growth and source of local government funds.