“Stability” buzzword for China’s economy 2022

Communist Party’s top decision-makers have set the course for China’s economic policies in 2022. “Stability” is given top priority. The nation’s annual central economic work conference wrapped up on Friday. The official statement vowed, “to safeguard macroeconomic stability, keep major economic indicators within an appropriate range and maintain social stability”.

To achieve this, Beijing wants to pursue a proactive fiscal policy as well as strengthen the vitality of market participants. The meeting furthermore highlighted the need to give priority to the healthy growth of the real estate sector and stressed that “housing is for living, not for speculation”.

The country’s policymakers further pointed out that the country’s economy is now “facing threefold pressure, including contraction of demand, supply shocks and weaker expectations.” Also, the external environment is becoming “increasingly complex, difficult and uncertain”, according to Beijing.

Against this background, experts see the policy shift from regulation to growth stabilisation.

The shift in policy directions indicates how Chinese leaders plan to push back against a variety of strong economic headwinds heading into next year.

The Chinese economy has slowed down in recent months. This happened due to the slump in the property market – exacerbated by the Evergrande crisis – weak consumption growth and repeated outbreaks of Covid-19.

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Besides this, uncertainties also persist resulting from the overstressed US-China trade policies.

Why China needs economic “stability” in 2022

According to a recent International Monetary Fund (IMF) note, the rapid withdrawal of policy support and the lagging recovery of consumption slowed China’s economic recovery. Meanwhile, increased power cuts and comprehensive regulatory measures towards sectors like the internet, luxury goods, and real estate, has increased policy uncertainty, IMF added.

“Downside risks to the current forecast of GDP growth of 8.0% in 2021 and 5.6% for 2022, are accumulating,” the report further noted.

With the key goals for the coming year include counteracting growth pressures and stabilizing the economy, economists are now predicting that China will start adding fiscal stimulus in early 2022.

“A call for counter-cyclical policies was the first time Chinese authorities have used the phrase this year. This should help ease market concerns of a sharp slowdown in economic growth,” Barclays Plc analysts wrote in a note.

James Thom, Senior Investment Director, Asian Equities, at abrdn expects that the pressure on China’s real estate industry is unlikely to ease, for the time being. The analyst noted that the “slowdown in growth in China is largely homemade. This is due to restrictions on the real estate and energy sectors and the push for shared prosperity.”

Increasing domestic consumption continues to be a strategic priority for China, he added. “The structural drivers of Chinese consumer spending remain intact. Rising disposable incomes and increasingly health-conscious citizens are likely to boost demand for health products and services.”