Beijing strengthens efforts to stabilize China’s slowing economy

In the midst of a pandemic in 2020, President Xi Jinping, who engaged in a balance of power with the United States, conceptualized his economic doctrine in the name of “double cycle.” This reduces the dependence of China’s economic growth on exports (international circulation) and supports local demand (domestic circulation) stimulated by support measures for a population of 1.4 billion potential consumers. I am aiming for it. This will allow China to mitigate the weakening caused by external shocks. In fact, Chinese leaders have included this goal in their five-year plan for several years.

Structural reform pending

But for now, it’s far from reaching. After observing a slowdown in the last two quarters late last year, the government changed its strategy and prioritized economic stability over implementing planned structural reforms in many major sectors of the economy. Momentum including real estate, technology and private education sectors.

Also, with a global outlook update at the end of January, the IMF revised China’s growth rate from 5.6% to 4.8% in 2022. It recovered to 8.1% in 2021. Persistence of a pandemic in many parts of China, the Zero-COVID policy applied by the authorities, has greatly contributed to slowing the activity of the global industrial engine. The retreat of real estate giant Evergrande in the fall also raised serious concerns among investors. “China’s slowdown will impact the global outlook, primarily through commodity exporters and emerging markets,” he said. Warn the IMF economist in the summary. “Reducing spending in the real estate sector and dragging personal consumption more than expected also limited growth prospects.” They add. Monetary easing with lower interest rates and credit lines and tax exemptions for SMEs should allow China’s activity to recover during the first quarter.

Consumption levels remain lower than before the pandemic

However, this rebound is still awaited. “Even though the number of people returning to their families to celebrate China’s Lunar New Year holidays (starting February 1st) has increased by nearly 48%, indicators such as cinema attendance and tourism revenue are consumption levels. Is not actually increasing, probably due to the worsening economic situation. “Underline Nomura analysts.

According to a note from Euler / Allianz, economists Francoise van and Ludwig Souverain calculated: “Even if health improves, consumer spending will probably remain 2.8% below pre-pandemic levels in 2022, or $ 170 billion.”

In addition, other indicators such as car sales, real estate transactions, or activity rates in certain major manufacturing sectors show that despite support measures, they continue to deteriorate in January.

“GDP growth in the first quarter could slow further. Annual growth in inventories across funding after Chinese regulators urgently urged banks to increase lending in the last week of January. Credit growth as measured at may accelerate, and more supportive measures after the annual meeting of the National People’s Assembly in early March. “Please explain about Nomura analysts. This conference, the most important organization of the Chinese Communist Party, is very important as it must ratify the third renewal of Xi Jinping as the new president.

Corporate tax cuts

Unlike OECD leaders who have to deal with rising inflation, Chinese leaders must, on the contrary, maintain economic activity at a constant pace to avoid excessive slowdowns. Further reductions in tax rates and support for businesses in the form of tax exemptions, especially SMEs, should contribute to this. “We expect the key rate to be further reduced by 10 basis points, the bank’s reserve requirement ratio to be reduced by 50 basis points in the first half, and further in the second half if necessary. Additional public debt infrastructure to help with investment. Investment should be equivalent to about 3% of nominal GDP in 2022. “Believe in Françoise Huang and Ludovic Subiran.

In December, the Central Bank of China has already lowered these two interest rates for the first time in 20 months. The key rate is currently 3.7%. The purpose is to promote the credit status of households and businesses. This should make it possible to support domestic activities in a “double cycle”, exports should benefit from the depreciation of the yuan, which is due to better regional integration and tighter relations with China. Make your product more competitive in the international market. America.

“This should enable us to strengthen the Chinese economy in the second half of 2022.”, Guarantee Euler / Allianz Analysts. There will be good signs from the Chinese authorities, which will announce the official growth target for 2022 in early March.