China's Q4 Economic Growth Rate at 4.0%... Lowest in a Year and a Half (Comprehensive)

2021 Annual Growth Rate of 8.1%

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Cho Hyun-ui] China's GDP growth rate for the fourth quarter of last year was recorded at 4.0%.

On the 17th, the National Bureau of Statistics of China announced, "GDP in the fourth quarter of last year increased by 4.0% compared to the same period last year."

Although this is the lowest level in a year and a half since the second quarter of 2020, when the economic shock from COVID-19 was at its peak, it exceeds the market forecast of 3.6% compiled by Bloomberg News.

China's quarterly growth rates last year showed a clear trend of economic slowdown, rising to 18.3% in the first quarter due to the base effect, then falling to 7.9% in the second quarter, 4.9% in the third quarter, and 4.0% in the fourth quarter.

China's GDP in 2021 was 114.367 trillion yuan (approximately 2,144.2 trillion won), an 8.1% increase from the previous year. The growth rate largely matched Bloomberg's market forecast of 8.0%.

Earlier, the Chinese government set the economic growth target for last year at "around 6%." However, since the government conservatively set the target considering high uncertainty at the time, there is a strong sentiment in China that achieving the target itself is not of great significance.

Experts believe that to remove the distortion effects caused by the COVID-19 pandemic variable, it is reasonable to average the results of 2020, when growth sharply declined due to the pandemic shock, and 2021, when growth was relatively high due to the base effect.

The announced average annual growth rate for 2020?2021 was 5.1%. Ultimately, it can be seen that China's growth rate showed a downward trend from 6.0% in 2019, the year before COVID-19, to about 5.1% in 2020 and 2021 respectively.

Previously, China's growth rates declined from 9.6% in 2011, 7.9% in 2012, 7.8% in 2013, 7.4% in 2014, 7.0% in 2015, 6.8% in 2016, 6.9% in 2017, 6.7% in 2018, to 6.0% in 2019. The 2.2% in 2020 was the lowest in 44 years since the negative growth recorded in 1976 after the Cultural Revolution, due to the impact of COVID-19.

China, which was considered one of the first major countries to recover from the economic shock of COVID-19 by implementing strong quarantine policies symbolized by "Zero COVID," began to show a clear economic slowdown in the second half of last year. While this was partly influenced by external factors such as the global surge in raw material prices and supply chain bottlenecks, there are also many criticisms that the Chinese government's harsh regulations across various sectors including real estate, big tech (large information technology companies), and education led to a weakening of growth momentum.

In particular, the high-intensity real estate regulations aimed at reducing debt in the real estate sector, which is estimated to account for nearly 30% of China's GDP, pushed the real estate industry into crisis and triggered defaults by "giants" like Evergrande, shaking the overall stability of China's economy.

US investment bank JP Morgan recently pointed out in a report that "in the short term, the real estate market downturn is the biggest threat to China's macroeconomy and financial stability." In fact, real estate investment in 2021 increased by only 4.4% compared to the previous year.

Last year's fixed asset investment growth rate, which reflects real estate investment, industrial investment, and infrastructure investment, was also only 4.9%, far below the double-digit growth rates of previous years.

As China continues to adhere to the "Zero COVID" policy, the rapid increase in locked-down cities and regions across the country, such as the complete lockdown of Xi'an, a city with a population of 13 million, since the end of last year due to the severe spread of COVID-19, is also said to have a serious impact on China's economy, especially domestic consumption and employment.

Bloomberg News evaluated, "China's Zero COVID strategy helps industrial production but will cause significant pain to consumption, especially in the restaurant and travel industries." Retail sales growth in December last year was 1.7%, down from 3.9% the previous month, marking the lowest point of the year.

Among the three main engines of China's economic growth?exports, investment, and consumption?exports are widely regarded as having effectively led China's economic growth last year, despite significant sluggishness in investment and consumption. According to the General Administration of Customs announced on the 14th, China's exports in 2021 surged 29.9% year-on-year to $3.364 trillion (approximately 3,996 trillion won), benefiting from the "COVID-19 special demand."

However, amid expectations that the export growth rate, which drove China's economic growth this year, will slow to normal levels, concerns are growing that adverse factors such as the contraction of the real estate market and the worsening spread of COVID-19 will continue for some time, causing China's economic growth rate to fall below 5% next year.

Amid concerns that the economic slowdown trend will solidify, China has recently focused on stabilizing the economy, prioritizing steady growth as its main economic policy.

Last month, the People's Bank of China cut the reserve requirement ratio and the loan prime rate (LPR), which is the effective benchmark interest rate, once each. On the day of the economic data release, it unexpectedly lowered the Medium-term Lending Facility (MLF) rate, the policy rate, by 0.10 percentage points, signaling an additional LPR cut on the 20th.

In the materials released by the National Bureau of Statistics on the day, it stated, "Amid increasingly complex and severe external conditions, the domestic economy is facing 'triple pressures.' Based on the general principle of 'stability amid progress,' we will maintain the overall stability of the macroeconomy to stabilize society and successfully hold the 20th Party Congress."