China’s economy expanded by 8.1% in 2021 but Beijing faces pressure to shore up activity after an abrupt slump in the second half as the ruling Communist Party forced its vast real estate industry to cut surging debt.
Growth in the world’s second-largest economy sank to 4% over a year earlier in the final three months of 2021, government data showed Monday. That was down from the previous quarter’s 4.9% and an eye-popping 18.3% in the first three months of 2021.
Forecasters warn weakness will persist this year due to renewed coronavirus outbreaks and the debt crackdown. That has potential global repercussions, depressing Chinese demand for steel, consumer goods and other imports.
China rebounded quickly from the coronavirus pandemic, but activity slowed as Beijing tightened controls on borrowing by the real estate industry, causing a slump in construction that supports millions of jobs. That fueled consumer jitters about spending and financial market anxiety about possible defaults by developers.
“Downward pressure on growth will persist in 2022,”Tommy Wu of Oxford Economics said in a report. He said the government is likely to launch “policy support” to keep annual growth above 5%.
Growth in consumer spending, the economy’s biggest driver, plunged to just 0.2% in December from the previous month’s 3.9%. Growth in investment in factories, real estate and other fixed assets decelerated to 1.7%, down from the full year’s level of 4.9%, as developers canceled or postponed building plans.
Worsening weakness toward the end of 2021 prompted suggestions Beijing needs to cut interest rates or inject money into the economy through public works spending. The World Bank and private sector forecasters have trimmed this year’s growth outlooks, though to levels above those of most other major economies.
On Monday, the Chinese central bank cut its rate for medium-term lending to commercial banks to its lowest level since 2020 during the pandemic.
Coronavirus outbreaks have prompted Chinese leaders to impose travel controls or outright lockdowns on cities including Tianjin, a port and manufacturing center near Beijing. That has hurt spending on service industries. Industry analysts say processor chip manufacturing and other fields might feel an impact if the disruption lasts more than a few weeks.
“Economic momentum remains weak amid repeated virus outbreaks and a struggling property sector,” said Julian Evans-Pritchard of Capital Economics said in a report.
Compared with the previous quarter, the way other major economies are measured, the Chinese economy grew 1.4% in the final three months of 2021. That was up from the previous quarter’s 0.2%.
Chinese exports, reported Friday, surged 29.9% in 2021 over the previous year despite a global shortage of semiconductors needed to make smartphones and other goods and power rationing imposed in major manufacturing areas.
Chinese exporters have benefited from reviving global consumer demand at a time when their foreign competitors are hampered by anti-virus controls. But economists say this year’s trade growth is likely to be weak and export volumes might shrink due to congestion at ports.
“With supply chains already stretched to capacity, last year’s boost from surging exports can’t be repeated,” said Evans-Pritchard.
Auto sales fell for a seventh month in November, declining 9.1% from a year earlier, reflecting consumer reluctance to commit to big purchases.
Chinese leaders are trying to steer the economy to more sustainable growth based on domestic consumption instead of exports and investment and to reduce financial risk.
One of the country’s biggest developers, Evergrande Group, is struggling to avoid defaulting on US$310 billion owed to banks and bondholders.
That has fueled fears about other developers, though Chinese officials have tried to reassure investors any impact on lending markets can be contained. Economists say a potential Evergrande default should have little effect on global markets.
Factories in some provinces were ordered to shut down in mid-September to meet official targets for energy use and energy intensity, or the amount used per unit of output.
Asian financial markets were mixed Monday after the Chinese interest rate cut and data release. The Shanghai Composite index gained 0.6% while Hong Kong’s Hang Seng dropped 0.6%.