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MNI: China Will Struggle To Hit 2022 Target On Stimulus Delay

MNI (Singapore)
MNI (Beijing)

China’s 2022 growth could slow to under 4% and miss the government’s target of “around” 5.5% as new stimulus is unlikely until key leadership roles are filled even as the ailing property market, weak exports and hit to consumer spending from Covid-Zero policies offset increased infrastructure spending, advisors and analysts told MNI.

Beijing has a strong track record of meeting its growth targets laid out each year at the National People’s Congress in March, but advisers said the government will need to accept the reality it will fall short this time.

“It is acceptable as long as the average growth for the past three Covid-affected years reaches about 5-5.5%,” said an advisor, who requested anonymity, adding they expect growth of 3.2-3.4% in 2022. Fourth quarter growth may be 4% year-on-year due to a lower comparison base, but even that could be threatened by a quicker-than-expected slowdown in exports, the advisor said.

“The growth rate of Q4 may fall between 3.5% and 4% year-on-year after the economy stabilised more than expected at 3.9% in Q3,” said Wang Jun, academic committee member at the China Center for International Economic Exchanges. This means annual growth may end up around 3.5% given Covid lockdowns smashed down a “deep pit” in Q2 growth, said Wang, who is also chief economist at Zhongyuan Bank.

Advisors are not expecting major stimulus for the rest two months as new department heads are yet to be appointed following the conclusion of last week’s 20th National Congress at which President Xi Jinping secured a third term.

Fiscal policy is expected to track its seasonal pattern where over CNY1 trillion of next year’s quota of infrastructure-back special bonds will be front-loaded, helping southern provinces fund additional construction, said Wang. He expects infrastructure investment growth will quicken to 9% y/y by the end of the year from the 8.6% pace recorded in the first three quarters.

Wang doubts whether the People’s Bank of China will cut the reserve requirement ratio to free up capital at banks as forecast by some analysts. He’s concerned that additional financing may lead to a liquidity trap given weak demand for borrowing and believes the PBOC prefers structural tools to deliver better targeted stimulus.

WEAK DOMESTIC DEMAND

Weak domestic demand means it cannot take the lead in driving a recovery, especially at a time when the growing risks of a global recession could hurt external demand for China’s exports. The deceleration in retail sales to a 2.5% y/y pace in September is proof of weak domestic demand, with that figure contracting in real terms if adjusted by September CPI of 2.8%, ANZ analysts pointed out. (SEE: MNI POLICY: Fiscal, Credit Support To Drive China Growth Plans)

Excluding the base effect, month-on-month sales grew 0.4%, indicating a modest improvement in consumption, said CITIC Securities chief economist Ming Ming. who previously worked at the central bank. Ming cautioned that renewed Covid outbreaks in winter could threaten the frail consumer recovery.

Beijing has placed its hopes for a spending recovery on big-ticket items, such as cars and home appliances. Car sales, which are benefiting from purchase tax exemptions and subsidies, grew 14.2% y/y in September, are leading other areas of spending. Purchases of home-related items have been dampened by sluggish property sales.

Home sales on a square metre basis fell 22.2% y/y in the first three quarters, narrowing the pace of decline for a second month.

Local governments should continue to revive the market with lower down-payment ratios, the loosening of purchase restrictions and support for the purchases of second homes, said Yan Yuejin, director of E-house China Research and Development Institution.

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