China's Q4 Growth Rate at 4.0% Last Year... Annual 8.1% (Update)

PBOC Abruptly Cuts MLF Loan Rate Amid Growth Slowdown Concerns
Risk Signals Emerge Across China's Economy... Infrastructure Investment Expected to Boost Growth

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China's fourth-quarter economic growth rate significantly slowed last year. As the Chinese economy rapidly cooled down, the possibility of adverse effects on the global economy increased. The People's Bank of China, the central bank, also cut the Medium-term Lending Facility (MLF) loan interest rate for the first time in 21 months, considering the slowdown in growth.

On the 17th, the National Bureau of Statistics of China announced that the domestic gross domestic product (GDP) growth rate for the fourth quarter of last year was 4%. The growth rate in the fourth quarter dropped sharply due to a combination of domestic and international adverse factors, including rising international raw material prices, power shortages caused by coal shortages, and partial resurgence of COVID-19.

However, the annual growth rate was recorded at 8.1%, achieving the Chinese government's initial target of "above 6%."

China's economic growth rate seemed to recover from the COVID-19 shock by recording 18.3% and 7.9% year-on-year growth in the first and second quarters of last year, respectively. However, from the third quarter of last year, the growth rate sharply declined, showing a typical "high in the first half, low in the second half" pattern. At that time, the dominant forecast was that the Chinese economy would achieve more than 5% growth in the third quarter, but it fell short of the 5% mark, growing only 4.9%. Even considering the base effect, growth in the 4% range indicates that momentum is rapidly weakening.

Warning signs of the slowdown in China's economic growth in the fourth quarter had already appeared in various places. Interest rates are a representative example. In December last year, the People's Bank of China lowered the one-year Loan Prime Rate (LPR), which is the benchmark interest rate, by 0.05 percentage points. When the economy was severely shaken by the COVID-19 outbreak, the People's Bank of China had lowered the LPR by 0.20 percentage points in April 2020. Previously, the reserve requirement ratio (RRR) was also lowered by 0.5 percentage points. Depending on the economic situation in the first quarter of this year, the Chinese government has expressed its intention to inject more funds and support the economy through additional interest rate cuts.

Meanwhile, on the same day, the People's Bank of China cut the one-year Medium-term Lending Facility (MLF) loan interest rate from 2.95% to 2.85%, a 0.1 percentage point reduction. The MLF is policy funding supplied by the central bank to financial institutions. This is the first time the People's Bank of China has lowered the MLF rate since April 2020.