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China business outlook 2022: towards domestic consumption for sustainable economic growth.

Exports will continue to drive China’s economy for the rest of the year as the domestic market remains sluggish, according to analysts.


Chinese leaders have indicated for many years that they want to move away from exports as the main source of growth and toward domestic consumption for sustainable economic growth, said Mattie Bekink, China director at the Economist Intelligence Corporate Network. 


“But that’s certainly not what’s happened during the pandemic. So China’s economic recovery has largely been dependent upon on return to its old export driven model, while consumption has really lagged,”


“In 2020, for example, net exports contributed the largest share of Chinese GDP growth since 1997 and consumption is not even recovered yet to its pre-Covid trend, according to China’s National Bureau of Statistics,” Bekink said.



Despite global disruptions of supply chains during the pandemic, China’s trade surplus rose to $676.43 billion in 2021— up from $523.99 billion in 2020, and the highest on record going back to 1950, according to official data from Wind information.“Exports will still continue to be a very important growth driver for the Chinese economy in 2022.”


Last week, China’s central bank cut its benchmark lending rates again amid rising concerns of slowdown in the economy, and reduced the one-year loan prime rate as well as the five-year LPR. Loan prime rates affect the lending rates for corporate and household loans in the country.


The world’s second largest economy grew 8.1% in 2021 as industrial production rose steadily through the end of the year, according to official data from China’s National Bureau of Statistics released Monday. GDP in the fourth quarter rose 4% from a year ago, faster than analysts expected.


“China’s economy is almost running on two tracks. The export-based economy actually is fine, but the domestic economy is quite soft,” Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics, told CNBC’s “Squawk Box Asia” on Wednesday.


Lackluster spending in China

Still, domestic demand will continue to be a drag on the economy due to China’s zero-Covid policy, which has prompted multiple travel restrictions within the country including the lockdown of Xi’an city in late December. Official data from Monday showed that retail sales missed expectations and grew by 1.7% in December from a year ago. 


“Given the zero-Covid policy and the difficulty in terms of traveling tourism, even spending over the upcoming holiday season is going to be quite weak,” Cochrane added.


With consumer sentiment uncertain and hiring still soft, China is expected to continue its policy easing measures to boost the domestic economy.


“This is why the PBOC has been front loading on monetary policy easing, including policy rate cuts well as net injection of medium to long-term liquidity,” said Zeng, referring to the People’s Bank of China’s recent surprise move to cut its loan rates.China’s central bank cut the borrowing cost of medium-term loans for the first time since April 2020. It also cut the seven-day reverse repurchase rate, another lending measure. The PBOC also injected another 200 billion yuan ($31.5 billion) of medium-term cash into the banking system.



Source: CNBC



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