CHina is there The sport of curling has not been very successful, with the Beijing Winter Olympics set to begin on February 4th. But the country’s economic policymakers can draw inspiration from obscure events. Like curlers, they have hard targets to hit. They are expected to grow by 5% or more by 2022, despite the threat of the arrival of the Omicron form of the Covid-19, which appeared in seven provinces, major cities such as Shanghai and Tianjin, and was first reported on January 15 in Beijing.
The parallel does not stop there. Just as curlers have to slide a “rock” (a kind of large-sized puck) with enough force to reach the target, but not so much that it collapses from the ice, so Chinese policymakers must maintain a balance. They must leap enough for a 5% growth in a slow economy, but not so much that it exceeds its limits, contributing to inflation and speculation.
According to figures released on January 17, China GDP It grew 8.1% in 2021, its fastest pace since 2011 “Nominal” GDP, Which does not correspond to inflation, increased even faster: by about 12.6%. And because the Chinese currency is strong GDP $ 17.7trn (market exchange rate), an increase of 20% over the previous year. Judging by these numbers, the economy seems to have all the momentum it needs.
But the epidemic weakened China’s economy so much in early 2020 that the next year always looked unusually strong. Growth slowed as 2021 progressed (see Chart 1). Now the economy also has to fight the Omicron variant. Unlike other countries, China has no desire to “survive” with the virus, even if its latest recurrence is less serious than the previous ones. Instead, it will try to keep the coveted form of Kovid at bay. Compulsory testing in Tianjin, for example, has already forced Toyota to suspend car manufacturing in its joint venture in the city. Volkswagen has faced similar problems.
Meanwhile, the delta has not disappeared. A massive lockdown was imposed in the central Chinese city of Xian when its officials failed to quickly control the outbreak of the Delta variant. Micron, which combines and tests DRAM The city said microchips (used for temporary storage) said the measures would have “some effect” on its plant’s output. Samsung also said it would have to “adjust” production at its flash-memory factory, which accounts for about 15% of the world’s capacity. Nanda Chips, according to Trendforce, is a market-intelligence firm. (Nanda The chip is used for permanent storage.)
China’s foreign customers are worried about what would happen if a Xian-style lockdown was imposed on a town near the center of the country’s export machine. But optimists point out that China’s export hubs are mostly in more prosperous regions where there are more capable governments. They have more effective communication tracing, which may allow them to target their lockdowns more precisely. For example, after the discovery of the Omicron infection in Shanghai, authorities increased the “risk” level (which includes strict restrictions on movement) not for the whole city or the whole district, but for small areas like a bubble tea shop where three workers were infected. “Zero-Covid may have 1,000 faces in 1,000 cities,” said one analyst, each depending on strategy and resources.
The more immediate economic threat posed by Omicron is not to foreign customers but to China’s own customers. Uninterrupted restrictions on travel and gatherings have hampered retail spending, which rose only 1.7% on a nominal basis in December, compared to a year earlier, and contracted after adjusting for inflation. Goldman Sachs, a bank, thinks more lockdowns this year could cut household spending by an entire percentage point. This has lowered its growth forecast GDP Total 4.8% to 4.3%, lower than government target.
China’s recent economic downturn has also been plagued by coal shortages, energy-tight environmental limits, regulatory crackdowns on consumer-oriented technology companies and strict restrictions on borrowing by property developers, forcing many to default, leaving home buyers without confidence. During curling, the teams sweep away debris and other obstacles from the stone path to smooth its passage over the ice. In China, policymakers are reversing one regulatory barrier after another in the way of the economy.
What explains this regulatory initiative? With the economy recovering quickly from the first wave of the epidemic, Chinese policymakers may conclude that this was a good time to counteract some of the negative side effects of growth, such as pollution and property speculation. Economic momentum seems certain. Exports in particular increased because people around the world spent less on face-to-face services during epidemics and more on products to keep them safe (masks), slim (exercise bikes) and intelligent (games consoles).
But this external source of growth is likely to decline by 2022. With the recent lockdown, foreigners are less likely to relapse into the comforts of their home. Customers who bought a games console or exercise bike in 2021 probably won’t need an upgrade anytime soon. Moreover, in order for China’s exports to increase from their current levels, splurges need to increase, not just repeat.
Somewhat later, policymakers now realize that growth needs stability. On January 17, China’s central bank cut its one-year loan interest rate from 2.95% to 2.85%. This was followed by a reduction in the reference rate of bank loans a few days later. These reductions follow a cut in reserve requirements imposed on banks last month.
The government is also relaxing monetary policy. It has extended income tax breaks, including favorable treatment for end-of-year bonuses It encourages local governments to issue more “special” bonds (which are paid for by revenue from infrastructure projects they have funded). It is also accelerating the construction of 102 infrastructure “mega-projects” outlined in the country’s five-year plan for 2021-25. China’s state grid, for example, will build 13 ultra-high-voltage transmission lines in 2022. Extended infrastructure investment could add at least a percentage point GDP Growth in the first half of 2022, according to Morgan Stanley, a banker.
Analysts at Morgan Stanley are relatively confident of meeting the government’s growth targets this year, unless policymakers make a soft landing for the property market. Home sales in December were down about 18% from a year earlier. To stem the tide, government officials have worked hard to reassure home buyers that the flats they bought in advance will be rebuilt, even if the developer who sells them is destroyed. The mortgage rate is declining. And several cities have experimented with subsidies and tax cuts to encourage home buying. Rosalia Yao, a consultant at Gavekal Dragonomics, said sales were expected to improve in the first quarter compared to the previous three months.
But while China’s national rulers are now committed to stabilizing the economy, they are still wary of over-stimulating assets, which are prone to worrying speculative bubbles. Beijing wants local governments to do enough, but not too much. The advice was removed from the Internet shortly after the northern province of Heilongjiang promised an “all-out sprint” to revive the property market, Ms Yao noted. Shrinking art, not sprinting, is a better metaphor for government goals. 3
Correction (January 28, 2022): An earlier version of this piece referred to sweepers as “skaters” in curling. In fact, they don’t wear skates.
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This article is published in the Finance and Economics section of the print edition under the title “Omicronic pains”.