MNI INTERVIEW: Investment, Easy Policy The Mix For China GDP

China is betting a pickup in investment will ensure at least 5% economic growth in 2022, on a possible real estate rebound and as more infrastructure projects are launched, offsetting expected weaker exports, Qiu Xiaohua, former director of the National Bureau of Statistics told MNI.

“Investment may rebound to around 6% from 2021’s 4.9%, and is likely to contribute over 20% to the overall growth this year, compared to the 13.7% contribution in 2021,” Qiu, now chief economist of Jufeng Investment Information said on the sidelines of 2022 Macro Situation Annual Forum held by Chongyang Institute for Financial Studies, Renmin University.

Qiu added that real estate investment could recover from a slow pace of gains last year to about 6% growth in 2022 following relaxed regulations on mortgage loans and financing for developers.

Qiu noted that currently commercial banks are equipped with sufficient quotas to lend to first or second home purchases, but buyers are still waiting to see the price floor in the near term.

For a look at the zero-Covid policy, see MNI INTERVIEW: China's Targeted Zero-Covid Gives Econ Headroom.

UPGRADING INFRASTRUCTURE

Qiu also sees a boost to infrastructure investment, especially in the rural areas.

“The policy signal to fill the urban-rural gap is clear,” said Qiu, adding that the per capita investment in public facilities of farmers is only about one-fifth of that of urban residents.

Promoting city renovation including building underground pipelines, adding tech-based infrastructure including 5G networks, improving the public health system and other public services are of focus this year, Qiu continued.

The People’s Bank of China said this month it would avoid a credit collapse and continue easing lending rates, including a 5 basis points cut to the five-year Loan Prime Rate last Thursday, on which many lenders base their mortgage rates.

Monetary policy should move actively to cushion the economic slowdown as fiscal policy is restrained by debt issues for local government, he noted.

“There is still large space for the central bank to strengthen its (easing) bias,” he continued. The PBOC has also signaled that it will cut the reserve requirement ratio when necessary and ensure benchmark LPR to reflect market rate changes at a timely and sufficient pace, boosting market expectations for more cuts.

Stimulus measures must be taken at an urgent pace as the 4% GDP growth in Q4 has been below the policy bottom line, which is quite concerning, the former official said. He added that the dovish signals from the PBOC reinforced his views.

However, the pace of further rate cuts is constrained by the Federal Reserve’s expected upcoming tightening as well as rising inflation, said Qiu, see: MNI: Fed To Phase In QT From Mid-Year - Ex Officials.

He expects consumer price increases may rebound to 2% to 3% from 2021’s 0.9% as food prices, especially pork, tends to pick up and the higher upstream costs may further channel to the consumer market amid better recovery of consumption.

“PPI will gradually decelerate to the single-digit range on the high comparable base last year with policy measures to ensure supply,” Qiu added.