China’s economic downturn ramps up urgency for Beijing to keep market expectations in check
- China’s GDP growth seen weakening to 2.9 per cent in first-quarter 2022, Nomura economist forecasts
- Beijing is urged to be cautious in introducing policies that have a contractionary effect
China has pledged to keep market expectations anchored and manageable in the coming year, according to a senior economic official, despite strong headwinds and growing pessimism about the nation’s economic outlook.
“There have been fluctuations in terms of market expectations and corporate confidence,” Ning Jizhe, deputy head of China’s National Development and Reform Commission, the country’s top economic planner, said in an interview with Xinhua published on Tuesday. “The importance of keeping expectations stable has become more prominent.”
He specifically pointed to “uncertainties” surrounding economic operations amid the ongoing pandemic.
In an official statement following China’s annual central economic work conference this month, “weaker expectations” were said to be contributing to the “threefold pressure” facing China’s economy, along with “contraction of demand” and “supply shocks”.
Despite Beijing’s recent easing in its macroeconomy policy stance, market concerns over China’s economic downturn persist.
The nation’s economic growth is expected to weaken further in spring 2022 due to a worsening property sector, the rising costs of China’s zero-Covid strategy, a downturn in exports, and widespread factory closures before and during the upcoming Winter Olympics, Lu Ting, chief China economist at Nomura, said in a report earlier this month.
Lu expected gross domestic product (GDP) growth to slow further to 2.9 per cent, year on year, in the first quarter of 2022, compared with 18.3 per cent growth in the first quarter this year due to a lower comparison base in 2020.
“Beijing’s [economic policy] easing in 2022 would stand in sharp contrast with most other economies,” he said.
In the interview with Xinhua, Ning also said that China should effectively evaluate the potential impact of economic policies before they are rolled out, and that Beijing must be cautious in introducing policies that have a contractionary effect – a point that another senior economic policymaker, Han Wenxiu, also warned about earlier this month.
In the past year, Beijing rolled out reforms and regulatory crackdowns on various sectors, including technology, education and real estate, along with a push for “common prosperity”, and that heavy-handed approach has sparked concerns among global investors.
Thus, it is important for the government to guide enterprises and residents to interpret the policies appropriately, so as not to cause confusion, according to Li Xunlei, chief economist and head of Zhongtai Securities’ research institute.
“It’s normal to have ‘weakening expectations’,” Li wrote in a note on Tuesday. “Service sector consumption, such as for travel and entertainment, has dropped significantly due to the pandemic, and the expected return on investment has also fallen due to the economic slowdown, which has further dragged down the willingness to invest.”
Li said China has made strides in recent years when it comes to managing expectations to avoid surprising developments in macroeconomic policies. For example, the People’s Bank of China gave clear signals ahead of its two reserve requirement ratio cuts this year.
As for privately owned enterprises, it is important for the government to emphasise that China will “unswervingly encourage, support and guide” their development, Li added.
“Make sure all private enterprises are convinced that common prosperity is a long-term goal based on ‘making the cake bigger’, so private enterprises will further increase their willingness to invest,” he said.
Ding Shuang, chief Greater China economist at Standard Chartered Bank, said that although the policy signals have been clear, further quantitative guidance is essential to guide the market and boost investor confidence.
“So far, we have many qualitative descriptions on boosting confidence, but there is a lack of quantitative discussion on specific policies, such as the expected growth target, the size of the fiscal deficit, and the credit growth rate,” Ding said.
Author: Ji Siqi, SCMP