Chinese GDP surprise sets expectations too high

Vendor sells Chinese Lunar New Year decorations at an outdoor market in Beijing
A vendor sells Chinese Lunar New Year decorations at an outdoor market in Beijing, China January 13, 2023. REUTERS/Tingshu Wang

HONG KONG, Jan 17 (Reuters Breakingviews) - The Chinese economy grew 3% in 2022, the government reported, beating forecasts but way below the official 5% target. Ending consumption-suppressing policies is removing drags on growth, but with fiscal coffers low, and debt and inflation rising, China is short on tools to drive growth.

The surprising lift is largely thanks to a rosier-than-expected fourth quarter, when the country took a ride on a pandemic-policy rollercoaster. As the contagious Omicron strain spread through cities, local officials’ first reaction was to tighten lockdowns, which suppressed consumption. Then Beijing abruptly scrapped its zero-Covid mandate, which wound down quarantine but also unleashed a massive outbreak. A Peking University study estimated roughly 900 million had been infected as of Jan. 11. There is, therefore, scepticism among some economists that activity really increased 2.9% in the last three months of the year; China Beige Book survey estimates the economy actually contracted during that period.

Regardless, the chaotic end of quarantine coincided with other easing measures, including the softening of crackdowns on real estate developers and private technology giants, respectively, which set the basis for a recovery in 2023. But it will take more than removing hobbles to get China out of the basement. The property market, which drives a quarter of output, is still falling; official data showed investment in the sector fell 10% last year, the first decline since records began in 1999. As for debt, despite a multi-year deleveraging campaign, credit to the non-financial sector crept up to nearly 300% of GDP by the second quarter of last year, per Bank for International Settlements data.

In that context, monetary and fiscal options are limited. While China’s core inflation is subdued at 0.7%, energy and food prices are not, and the U.S. Federal Reserve is still tightening. Local governments’ stimulus ammunition is low. Fiscal revenue fell 3% in the first 11 months while income from land sales plunged 22%. Policymakers are merely eyeing a 3% budget deficit for this year, per Bloomberg, compared to 2.8% in 2022.

That’s hardly enough to revive market confidence; Chinese equity indexes fell after the GDP report. That could mean leaning even harder on the state sector. Last year the People’s Bank of China handed over 1 trillion yuan ($148 billion) to the central government to spend on growth, for example. Regardless, it won’t take long for the glow from the fourth quarter’s outperformance to fade.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)


China’s gross domestic product grew 2.9% in the fourth quarter compared to the same period the prior year, slowing from 3.9% in the third quarter, data from the National Bureau of Statistics showed on Jan. 17. Analysts polled by Reuters had expected it to grow 1.8%.

Analysts polled by Reuters had expected GDP to expand 2.8% in 2022. The Chinese government had set the official annual GDP target at "around" 5.5% in March.

Editing by Pete Sweeney and Thomas Shum

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Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.