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China Faces More Growth Risks, Increased Policy Support in 2022

(Bloomberg) -- China’s economy is facing multiple risks heading into next year, with a property slump lingering and a new virus variant possibly upending the global recovery.

Economists expect Chinese authorities to boost fiscal and monetary support next year after a relatively restrained approach for most of this year. The People’s Bank of China last week signaled an easing bias, while the State Council, China’s cabinet, urged local governments to speed up spending.

All eyes are on two key political meetings in December -- the Communist Party’s Politburo and the Central Economic Work Conference -- for clues on next policy steps. Here’s a look at what economists are expecting for gross domestic product and financial support in 2022:

Haibin Zhu, JPMorgan Chase & Co. Beijing has been gradually downplaying its focus on a GDP target, with Zhu expecting the government to settle on a range 5.5%-6% next year from “above 6%” in 2021. Even so, growth will likely undershoot next year’s goal and come in at 4.7%, he estimated. Authorities will likely stick with their approach of fine-tuning policy ---- providing targeted support to areas that need it rather than flooding the economy with stimulus. For the housing market, that means some normalization in mortgage loans and lending to property developers, though no lifting of the “red line” restrictions, he said. Fiscal policy will continue to be a drag on growth, although smaller, at an estimated 0.5% of GDP in 2022 versus 3.6% this year. The probability of interest rate cuts next year is low, he said.
Chang Shu, Bloomberg Economics

Bloomberg Economics says the government will likely target a 5%-6% GDP range next year, with growth likely to come in at 5.7%. In 2021, policy played a secondary role in setting the growth trajectory, but that’s likely to change next year, Chang Shu and David Qu wrote in a report. The extent of the slowdown will hinge largely on what balance China strikes between supporting short-term growth and advancing long-term reforms, they said. The People’s Bank of China will likely cut the interest rate on its one-year medium-term lending facility by 20 basis points and the reserve requirement ratio by 100-150 basis points by the end of 2022.
Nov 30, 2021 12:42
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