China’s GDP: 5 things to watch before Xi pushes for a third term

China will release its fourth-quarter and full-year gross domestic product growth estimates on Monday, at an important economic and political time for President Xi Jinping, who is seeking a third term. served as head of the Communist Party, army and government.

The party’s politburo last month stressed the importance of stabilizing the economy and financial system, which has been rattled by the downturn in property field. But it shows no intention of abandoning the policies that have led to defaults at Evergrande and other major developers.

Balancing stability and fiscal discipline will test Mr. Xi’s economic team, led by Vice Premier Liu He, in the coming months.

Here are five things to look out for when releasing.

Will quarterly growth be closer to zero or more than 1%?

On a quarterly basis, China’s economy grew only 0.2% in both the first and third quarters of last year and 1.2% in the second quarter.

The quarterly numbers are a much more accurate measure of the health of the economy than the annual headline figures, which have fallen and then rebounded due to the Covid-19 pandemic.

Full-year growth for 2021 will easily exceed the official target of 6%. However, other low quarterly statistics will put pressure on Liu and the central bank he currently controls as the head of the government’s Financial Stability and Development Commission. do more to drive growth.

Does the outlook for the real estate industry continue to deteriorate or is it stable?

Property prices in China’s 70 largest cities fell 0.3 percent in November from October – the biggest monthly drop in nearly six years.

This is in line with Mr. Xi’s pledge to bring “common prosperity“To one of the most unequal countries in the world in terms of wealth distribution. But it can also have unintended economic consequences if they fall too quickly.

This industry is estimated to account for more than a quarter of total economic output. Its woes in recent months have been reflected in a slowdown in fixed asset investment, which grew 5.2% year-on-year in the January-November period.

This was slower than expected and much lower than the 7.3% now for September, when it became clear that leverage limits applied to developers in the coming months. 2020 is likely to push Evergrande into default.

Is the party’s zero-Covid strategy sustainable or is it about to incur unacceptable costs to the economy?

China’s export sector has been strong since the coronavirus was effectively brought under control in the first half of 2020. Periodic closures at key manufacturing areas and at major ports to accommodate clusters locality has not affected overall export growth, which has always been strong.

But this could change as the more transmissible Omicron variant risks causing further lockdowns, which coupled with the asset downturn has dampened consumer sentiment. Retail sales grew by just 3.9% in November last year, far below consensus predictions of 4.7% growth.

This week, Xi’an, a provincial capital with a population of 13 million, and two smaller cities are under complete lockdown. Two other major cities, Tianjin and Shenzhen, are enforcing partial lockdowns to facilitate city-wide testing.

However, the party is unlikely to relax its zero-tolerance approach to pandemic control until the party congress – likely to be convened in October or November – formally endorses a third term. by Mr. Xi.

Will increased pressure on the Chinese economy lead to a stronger monetary policy response?

China’s central bank cut its one-year lending prime rate for the first time since April 2020 but only 5 basis points. It also doesn’t change the five-year standard used to value mortgages.

The People’s Bank of China has prioritized the use of targeted reserve rate cuts in an effort to direct credit into favored sectors of the economy, such as agriculture and high-tech manufacturing. , instead of using “flood-like stimulus” that would undermine this bank’s efforts. in recent years to control high debt level.

Will China’s demographic peak come sooner than expected?

The National Bureau of Statistics is likely to release a rough estimate of the country’s 2021 birth rate – or births per 1,000 people. This will drop to 8.5 in 2020 from 10.5 the year before, the first time it has fallen below 10.

China recorded 12 million births, the lowest total in nearly 60 years, in 2020.

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