China’s GDP growth slows as Covid restrictions and real estate disaster hit demand

China’s gross domestic product grew at its slowest pace in 18 months in the fourth quarter as the government faced its toughest economic challenges since the start of the coronavirus pandemic.

Gross domestic product rose 4% year-on-year, data from the National Bureau of Statistics released Monday, beating economists’ forecasts but falling short of 6.5% year-on-year growth. term 2020.

The People’s Bank of China also cut a key lending rate for the first time since April 2020, adding to a series of easing measures in recent months concurrent with property declines and restrictions to limit the spread of the coronavirus.

Data and policy moves show China’s economy continues to lose momentum, having recovered from the initial impact of the virus much faster than other major economies but has struggled to sustain pre-pandemic growth over the past year.

China’s economy grew 8.1% for all of 2021, but that figure was distorted by a historic collapse in activity in early 2020 and a slowing annual growth in each quarter of last year. However, quarterly growth improved to 1.6%, compared with a revised 0.7% for the July-September period.

Ning Jizhe, head of NBS, said that in 2021, China “maintains a continuous and stable recovery of the national economy and maintains its leading position in economic growth and epidemic prevention and control. In the world”.

However, he added that “the domestic economy is under triple pressure from falling demand, supply shock and weakening expectations”.

The country’s strict measures to remove all coronavirus cases, with major cities implementing lockdowns in recent weeks, has highlighted lingering weakness in consumption. The nationwide slowdown in the critically important property field has weighed on the broader economy and caused a global reckoning in the health of the industry.

China’s long-term growth challenges include demographic profile deteriorated. The birth rate fell 12% a year to 10.6 million, the lowest number recorded since the Communist Party of China took power in 1949. The number of people aged 60 and under also fell for the first time, in when the overall population growth is only 480,000 people.

even though Exports have boomed Due to China’s dominance in global goods trade, industrial production, which increased by 7.3% year-on-year in December 2020, increased by 4.3% in the same month last year, although still exceeded forecasts.

Real estate investment is up 4.4% in 2021, while fixed-asset investment is up 4.9%, although both indexes slowed at the end of the year. In the fourth quarter, real estate investment fell 7.7%.

In a sign of continued consumer concerns, retail sales rose just 1.7% in December, the slowest pace in 14 months.

The Chinese government last year revealed a momentum towards the so-called common prosperity, highlighting a willingness to close the inequality gap at the expense of economic growth.

In 2020, Beijing introduced policies designed to reduce leverage at its biggest property developers, which last year contributed to a cash crunch in a sector that includes land sales and construction.

Growth already exists markedly slowed down In the third quarter of last year, the government introduced easing measures, including reducing the reserve requirement ratio for banks.

Last month, the People’s Bank of China cut the prime rate for a one-year loan for the first time since the start of 2020, but only by 5 basis points. It does not change the five-year standard used to value mortgages.

On Monday, the central bank added to a pattern of gradual easing by cutting the one-year policy lending rate by 10 basis points to 2.85% and the rate on reverse repurchase agreements. 7 days down 2.1%.

“The surprising seven-day reverse repo rate cut reflects policymakers’ strong intention to stabilize GDP growth,” said Zhaopeng Xing, senior China strategist at ANZ. before”. “Slowing growth and increasing default risk for developers are both to blame for the cuts.”

Chaoping Zhu, global market strategist at JPMorgan Asset Management, noted that “the escalation in stimulus policies is very high.”

Additional reporting by Emma Zhou in Beijing, Tom Mitchell in Singapore and Hudson Lockett in Hong Kong

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