China is moving away from using gross domestic product (GDP) growth to assess its economic progress and instead will be focusing on “high quality development” in 2022 as President Xi Jinping enters his tenth year as the leader of Asia’s biggest economy.
ANZ Research said China has entered a new politico-economic regime with Xi set to be the first person since 1949 to officially hold the leadership position for more than 10 years.
“Having secured his leadership, Xi has less need to prove himself through GDP growth figures. His messages to local government officials and state-owned enterprises are also very clear: promotion will depend on their ability to execute his politico-economic thought,” said ANZ Research.
At the centre of Xi’s politico-economic thought is the goal of “common prosperity”. Going forward, policies will be heavily influenced by this vision to achieve equality in income and wealth.
“The government will adopt an economic interventionist approach in order to ensure the diffusion of Xi’s ideology into every aspect of the economy,” said Raymond Yeung, Zhaopeng Xing and Betty Wang of ANZ Research.
They added that China’s economic journey in 2022 will be characterised by reduction in taxes and fees, targeted support for small- and medium-sized enterprises and decarbonisation projects, and caps on local government debt.
Targeted support measures
“Authorities will attempt to match the pace of debt expansion with nominal GDP growth to avoid asset bubbles during the drive for ‘common prosperity’ and financial stability,” ANZ Research said.
“It is more likely to prefer keeping interest rates stable, to avoid giving the wrong signal to financial markets. As a result, the authorities will focus on targeted support measures rather than a broad-based easing.”
ANZ Research added that hidden financial liability of local governments is a potential risk, given the fact that credit market has not yet recovered from the default of Yongcheng Coal in 2020, only to be further impacted by crises at beleaguered bad-debt manager Huarong and debt-ridden property developer Evergrande in 2021.
China may see its first negative growth in property investment in 2022 and authorities in Beijing have responded by tweaking policies to prevent a “hard landing,” said ANZ Research.
“Following the slide in property prices in top-tier cities this year, the markets will be watching whether Chinese authorities are willing to relax property measures in 2022,” added ANZ Research.
“As China’s economy slows, we should focus on property prices, as expectations of positive growth in property prices remain crucial for financial stability.”
China’s 2022 growth forecasts
ANZ Research expects China’s GDP to grow 4.6% next year.
China’s state council is yet to publish a GDP growth outlook for 2021, but has stated “GDP growth of reasonable range in accordance with the situation of every year” for its fourteenth five-year plan for 2021-2025.
“The GDP growth rate could not serve as the sole yardstick of success for development,” read the resolution of the Communist Party of China central committee from last week.
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