China’s pandemic-defying economy slowed late last year, prompting rate cut

Gross domestic product grew 4 per cent in the final quarter of 2021 from a year earlier. PHOTO: BLOOMBERG

BEIJING (AFP) - China’s pandemic-defying economic growth slowed in the final months of 2021, official data showed on Monday (Jan 17) in a worrying signal for the global economy as Beijing’s central bank cut a key interest rate.

The world’s second-biggest economy, a key driver of global growth, expanded 8.1 per cent in 2021 on its strong virus recovery, National Bureau of Statistics (NBS) data showed, beating forecasts of 8 per cent in an AFP poll.

But much of that growth came in the first half of the year, with the economy shaken by a series of shocks towards the end of 2021.

China has been grappling with a spate of recent virus outbreaks, a cascading property market slump and a series of far-reaching regulatory crackdowns on some sectors.

Monday’s figures showed growth in the fourth quarter was the slowest in more than a year, at 4 per cent, down from 4.9 per cent from July to September.

They came as China’s central bank cut the rate on its one-year policy loans to 2.85 per cent, the first drop since April 2020 at the height of the pandemic and a clear signal from authorities that the outlook this year remains uncertain.

NBS spokesman Ning Jizhe warned Monday that “the domestic economy is under the triple pressures of demand contraction, supply shock and weakening expectations”.

‘Zero-Covid’ pros and cons

China’s “zero-Covid” policy has allowed life within its borders to largely return to normal.

Its globally vital factories largely avoided shutdowns at a time of spiralling international demand as many major economies went into painful lengthy lockdowns and work-from-home restrictions.

But strict border measures and targeted city lockdowns to fight domestic clusters have still dragged on the economy.

Its recovery in recent months was hobbled partly by a series of outbreaks, with officials reimposing strict and sweeping containment measures, hitting consumer demand.

Beijing’s drive to curb excessive debt and rampant consumer speculation also sent shock waves through a sector which had long been a key local driver for China.

Fourth-quarter growth was “dragged down by a slowdown in real estate... as well as renewed Covid outbreaks which raised restrictions in affected areas and heightened caution nationwide, which especially hurt the demand for services”, said Tommy Wu of Oxford Economics.

Coronavirus outbreaks have been bubbling up since October and started surging in recent weeks, albeit in small numbers by global standards.

On Monday, China reported its highest number of infections since March 2020, with tens of millions of people hit by lockdowns, travel restrictions or waves of mass testing across the country to stamp out multiple clusters.

The 13 million residents of Xi’an - normally an important tourism city - have been locked down for nearly a month.

Recent outbreaks have also impacted key port cities and manufacturing hubs.

 Economic pressure 

Key industrial areas also experienced power outages caused by an emissions-reduction drive, supply chain problems and surging energy costs in the second half of the year.

In December, industrial production grew more than expected at 4.3 per cent, according to official data. For the full year, industrial production grew 9.6 per cent.

But retail sales growth slowed sharply to 1.7 per cent last month, down from 3.9 per cent in November.

ING economist Iris Pang told AFP this was largely due to “automobiles and the lack of chips for its production”, adding that this trend was likely to continue as chips remain in short supply.

Waves of Covid restrictions have also dampened consumer sentiment. The urban unemployment rate ticked up to 5.1 per cent in December, official figures showed.

“Economic growth is clearly under pressure, (and) recent Omicron outbreaks in China exacerbated the downside risk,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“The Omicron outbreak has become the top risk in China.”

Beijing has been on high alert as it prepares to host the Winter Olympics next month, with its strict policy powering lockdowns, border restrictions and lengthy quarantines.

The city is now demanding a negative test before travel and a follow-up test after entering the city.

And the country looks set to spend another muted Lunar New Year - normally a key time for spending as hundreds of millions travel across the country to visit family - with millions of workers being told not to travel due to Covid.

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