Stable course charted for economy
China’s economy is likely to center on one word this year, stability — identified as the top priority at the Central Economic Work Conference attended by top policymakers in Beijing in December.
According to analysts, while the emphasis on stability is nothing new in the country’s economic policy, giving priority to stable growth does not mean returning to the old development path.
Pushing high-quality growth and accelerating construction of a new development pattern, with dual-circulation as the key to fully unleashing the economy’s potential, will continue to be a main theme of economic policy this year.
This development model means that domestic circulation, or the internal cycle of production, distribution and consumption, will be the mainstay of economic growth. Domestic and foreign markets, or international circulation, will reinforce one another to promote the smooth, twoway flow of goods and capital. The dual circulation idea was first put forward in May 2020 by the central leadership.
Attention is now focusing on how policymakers will tackle near-term headwinds to shore up growth without sacrificing long-term goals of pushing high-quality expansion through structural reforms and fostering a more equal and inclusive economy by promoting common prosperity.
China’s GDP reached 114.4 trillion yuan ($18 trillion) last year, 8.1% higher than in 2020, the National Bureau of Statistics said.
“China, the world’s secondlargest economy, is expected to account for more than 18% of the global economy in 2021,” said Ning Jizhe, head of the bureau.
The country’s per capita GDP stood at $12,551 last year, approaching the World Bank’s threshold for a highincome country, Ning said.
China now faces pressures from shrinking demand, a supply shock and weakening expectations, he said, and a greater effort needs to be put into ensuring the economy performs within a reasonable range.
At the Central Economic Work Conference top policymakers mapped out objectives for 2022, and suggested stepping up fiscal stimulus measures and accelerating public spending and issuing local government bonds to better unleash the potential of domestic demand.
Increased infrastructure investment and additional tax and fee cuts for companies can be expected this year. The government will expand effective investment in programs such as new infrastructure, new urbanization, hydropower and transportation, and speed up progress in other projects outlined in the 14th Five-Year Plan (2021-25), Ning said.
Economists said recovery momentum for the economy is likely to shift, being driven more by domestic rather than external demand, even though the country enjoyed strong export growth.
The value of China’s imports and exports totaled $6.05 trillion last year, the National Bureau of Statistics said. The value of exports rose 21.2% over the year, and of imports 21.5%.
Yu Miaojie, deputy dean of the National School of Development at Peking University, said implementing the dualcirculation model is key to China successfully building a unified domestic market and better unleashing domestic demand potential.
“The central leadership has given a clear policy signal that the core competitiveness of the economy is no longer the comparative advantage of its labor cost, but the huge and unified domestic market.
“Nourishing a strong home market to better unleash its potential is crucial for China to achieve high-quality growth and build a new development pattern.”
Kristina Hooper, chief global market strategist at the asset management company Invesco, said improving people’s well-being and promoting common prosperity will remain key themes in the government’s policy for the foreseeable future, which could boost domestic consumption, especially among lower-middle income groups.
Kang Yong, chief economist at KPMG China, said the country’s household consumption will further recover next year, but the pace of this improvement could still be affected by measures taken to control the pandemic.
Consumption in China remains resilient, and the improved job market has laid a solid foundation for this recovery, Kang said, adding that development of urbanization and policies to promote common prosperity and improve social welfare will strongly support mid- to long-term domestic consumption growth.
The property market slowdown has been a focal point, as analysts have identified it as a major risk that could threaten economic recovery if not tackled well. The debt crisis at the property developer China Evergrande Group triggered concerns that it may lead to a potentially wider crisis in the sector.
While curbs on property speculation will remain, the top leadership has vowed to foster a stable and healthy property development market by exploring new models and pushing construction of more housing projects for low-income families.
Chen Dong, head of Asia macroeconomic research with the Swiss company Pictet Wealth Management, said that while the property slowdown could have a negative impact on China’s overall economic growth, the threat to the country’s financial system can be controlled because the quality of domestic mortgage loans is relatively high.
Local government debt is another risk closely associated with the property market, and that the downturn could reduce land sales revenue for local administrations and put pressure on their income. The top leadership has pledged to resolutely contain growth of hidden local government debt.
Analysts said the top leadership has emphasized the need for better policy coordination to support economic development. Policy fine-tuning and improved implementation in key sectors can be expected, and to avoid unintended negative consequences for the economy there are likely to be fewer regulatory surprises in fields such as antimonopoly, deleveraging and decarbonization.