MacroscopeWhy China’s economy has the capacity to hit 6 per cent growth in 2022

Name: Inflatable Covid-19 testing lab in Tianjin speeds up mass testing in northern Chinese city
Uploaded: 2022-01-17T06:30:11.000Z
Duration: 1 min 42 s
Description: Inflatable Covid-19 testing lab in Tianjin speeds up mass testing in northern Chinese city

While consensus forecasts for China in 2022 are modest, Beijing is in a much healthier financial position than Washington and can afford more stimulus this year

When US financial credibility is looking overstretched, Chinese inflation is more subdued and there is room for more interest rate cuts

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People buy Lunar New Year decorations at a shop in Shanghai on January 12. China’s economy grew 8.1 per cent in 2021, and is expected to expand at around 5 per cent in 2022. Photo: EPA-EFE

David Brown

Published: 2:30pm, 17 Jan 2022

China’s economy may be slowing but there’s plenty of scope for solid performance ahead. Consensus forecasts are centring on Chinese growth slowing to around 5 per cent this year after hitting 8.1 per cent in 2021, but, with the right policies in place, 2022 growth expectations could easily be revised up.

The worst of the Covid-19 pandemic is over, global economic conditions are improving and world financial markets are in a buoyant mood. There’s little room for complacency and Beijing must raise the stakes on more economic stimulus this year. Without cheaper money, more bank lending and looser fiscal policy, growth potential might be compromised.

The economy needs all hands to the pump, with stronger consumer spending, increased business investment and significantly more government stimulus to keep growth momentum going strong. It’s just a question of whether Beijing is prepared to throw caution to the wind, pulling all its macro policy levers as the means to faster growth.

In the face of the pandemic and the subsequent global economic downturn, the United States has adopted much more of a devil-may-care approach, keeping interest rates close to zero and the markets flooded with easy money, while government finances have gone into hyperdrive to keep the economy pumped up.

The twofold strategy by the US Federal Reserve and President Joe Biden’s fiscal reflation plans seem to be working well, with US growth expected to come in at around 3.7 per cent this year, according to Organisation for Economic Co-operation and Development forecasts.

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Inflatable Covid-19 testing lab in Tianjin speeds up mass testing in northern Chinese city

On the downside, the cost of US fiscal expansion is likely to push the government debt-to-GDP ratio up to 132 per cent of gross domestic product by 2023, according to OECD projections, almost double the ratio of 64 per cent that preceded the 2008 financial crash. The worry for global bond markets is just how far US budgetary expansion can go before demand for US Treasury bonds finally comes unstuck.