newsdirectory3

China, impatient with the economic downturn… Interest rate cut, encouraging consumption

The growth engine of China’s economy is weakening. According to the National Bureau of Statistics of China on the 17th, China’s GDP growth rate in the fourth quarter of last year was 4.0% compared to the same period of the previous year, the lowest since the second quarter of 2020. In Beijing, on the 16th, a confirmed case of the Omicron mutant virus was also confirmed. Beijing Municipality has mandated that anyone entering Beijing from the 22nd to the end of March undergo a gene amplification (PCR) test within 72 hours of arrival. A man is being tested for PCR at a Beijing mobile testing station. AP Yonhap News “/>

The growth engine of China’s economy is weakening. According to the National Bureau of Statistics of China on the 17th, China’s GDP growth rate in the fourth quarter of last year was 4.0% compared to the same period of the previous year, the lowest since the second quarter of 2020. In Beijing, on the 16th, a confirmed case of the Omicron mutant virus was also confirmed. Beijing Municipality has mandated that anyone entering Beijing from the 22nd to the end of March undergo a gene amplification (PCR) test within 72 hours of arrival. A man is being tested for PCR at a Beijing mobile testing station. AP Yonhap News

China’s annual economic growth rate of 8.1% last year and 4.0% growth in the fourth quarter announced on the 17th exceeded market expectations of 8.0% and 3.6%, respectively. However, experts predict that this year’s growth rate will be around 5%, considering China’s economic slowdown.

The People’s Bank of China, the central bank of China, has begun preparations for further cuts in the benchmark interest rate in response to these observations. The National Development and Reform Commission, which oversees economic planning, has introduced policies to stimulate consumption, such as revitalizing travel amid the spread of the COVID-19 omicron mutant virus.

○ ‘Zero Corona’ policy burden continues

Omicron also appeared in Beijing The growth engine of China's economy is weakening.  According to the National Bureau of Statistics of China on the 17th, China's GDP growth rate in the fourth quarter of last year was 4.0% compared to the same period of the previous year, the lowest since the second quarter of 2020.  In Beijing, on the 16th, a confirmed case of the Omicron mutant virus was also confirmed.  Beijing Municipality has mandated that anyone entering Beijing from the 22nd to the end of March undergo a gene amplification (PCR) test within 72 hours of arrival.  A man is being tested for PCR at a Beijing mobile testing station.  AP Yonhap News

Omicron also appeared in Beijing The growth engine of China’s economy is weakening. According to the National Bureau of Statistics of China on the 17th, China’s GDP growth rate in the fourth quarter of last year was 4.0% compared to the same period of the previous year, the lowest since the second quarter of 2020. In Beijing, on the 16th, a confirmed case of the Omicron mutant virus was also confirmed. Beijing Municipality has mandated that anyone entering Beijing from the 22nd to the end of March undergo a gene amplification (PCR) test within 72 hours of arrival. A man is being tested for PCR at a Beijing mobile testing station. AP Yonhap News

According to the National Bureau of Statistics of China, China’s gross domestic product (GDP) last year was 114.367 trillion yuan (about 2,1442 trillion won), an increase of 8.1% from the previous year. This is a result that greatly exceeds the target of ‘more than 6%’ set by the Chinese government. However, many critics point out that this goal was set conservatively in consideration of uncertainties such as the spread of COVID-19, so the achievement itself is not significant.

“The domestic economy is facing a ‘triple pressure’ of shrinking demand, supply shocks and weakening expectations,” said Ning Jieze, head of the National Bureau of Statistics. The triple pressure is a risk factor pointed out by the Chinese leadership while proposing ‘growth in stability’ as the keynote of this year’s economic policy.

This triple pressure can be confirmed in the major economic indicators released today. Retail sales growth in December last year (compared to the same month of the previous year) was 1.7%, the lowest in 16 months after 0.5% in August 2020, when the impact of COVID-19 continued. Last month, the urban unemployment rate stood at 5.1%, up 0.1 percentage point for the second month in a row.

The growth rate of fixed asset investment (annual), which shows the business outlook of companies, was 4.9%, down from 7.3% in 2020, the time of the Corona 19. In particular, the growth rate of real estate investment was only 4.4%, demonstrating the market slump. The 13.5% increase in manufacturing investment is considered a positive aspect.

Saiyan Penner, an Asia economist at Oxford Economics, said, “China’s ‘zero corona’ strategy helps industrial production, but places a heavy burden on the consumption sector.” Wukai Securities predicted that the slump in consumption will continue as citizens increase their savings due to the re-spread of COVID-19.

It is evaluated that exports supported the economy while investment and consumption were significantly sluggish among export investment consumption, which is called the three engines of China’s economic growth. Last year, China’s exports amounted to $3.364 trillion, up 29.9% from the previous year. However, as the utilization rate of factories in advanced countries is on the rise, there are many forecasts that the increase in exports will soon stop.

In an effort to reduce optical illusions caused by COVID-19, the Chinese government announced on the same day that the average annual growth rate for the two years from 2020 to 2021 is 5.1%. This is interpreted as meaning that China’s growth rate has fallen to the 5% level after recording 6.0% in 2019. The market is predicting that the Chinese government will set its growth target for this year at ‘5% or more’.

The Chinese government’s think tank, the Academy of Social Sciences, predicted this year’s growth rate to be 5.3%. Global financial companies, such as Goldman Sachs and Nomura forecasting 4.3% and JP Morgan forecast 4.9%, expect the real estate recession and the aftermath of COVID-19 control to continue this year.

○People’s Bank to increase liquidity supply

The People’s Bank of China lowered the interest rate for one-year medium-term liquidity support (MLF) loans, which is the interest rate for policy funds supplied to banks, by 0.1 percentage point from 2.95% per annum to 2.85% per annum. It is the first time in 21 months since April 2020 that the People’s Bank of China cut the MLF rate.

The People’s Bank of China also issued a new MLF loan worth 700 billion yuan (about 131 trillion won) on the same day, and recovered a loan of 500 billion yuan that had returned to maturity, releasing 200 billion yuan. In addition, it provided an additional 90 billion yuan of liquidity through open market operation.

Lowering the MLF interest rate lowers the cost of financing for banks. The People’s Bank of China adjusts the MLF rate to determine the de facto base rate, the Loan Preferred Rate (LPR). The People’s Bank of China announced on the 20th that it would cut the base rate ahead of the January LPR announcement. The People’s Bank of China also cut the one-year LPR by 0.05 percentage points last month.

The Development and Reform Commission presented a plan to stimulate consumption before and after the Lunar New Year (Chinese New Year) the day before. As the Corona 19 Omicron mutant virus spreads throughout the country, including Beijing, it is unusual to encourage consumption.

The development committee suggested short-distance travel to low-risk areas for COVID-19 and revitalization of winter sports in line with the Winter Olympics season as countermeasures.

Beijing = Correspondent Hyeonu Kang [email protected]

Facebook
Pinterest
Twitter
LinkedIn
Email

Comments

Leave a Reply

Your email address will not be published.