China’s economic growth slowed last quarter as consumer spending took a dive, giving the central bank cause to cut its key interest rate for the first time in almost two years.
Gross domestic product grew 4 per cent in the final quarter of 2021 from a year earlier, the National Bureau of Statistics said on Monday, higher than the 3.3 per cent rise projected by economists but slower than in the previous three months.
For the full year, the world’s second-largest economy expanded 8.1 per cent, well above the government’s target of “over 6 per cent.”
The economy was battered by repeated shocks in the latter half of last year: electricity shortages, defaults from a slow-moving housing and property crisis, and repeated Covid-19 outbreaks. The slowdown prompted officials to try to front-load spending this year to boost investment and activity, with the central bank cutting policy interest rates for the first time since early 2020 to support growth.
The outlook for 2022 is still unclear, with global demand forecast to slow, the Omicron variant still spreading inside and outside the country, and no end to the housing market crisis that began with China Evergrande Group but has since snowballed.
The People’s Bank of China’s bigger-than-expected cut to the one-year medium-term lending facility rate shows it’s serious about putting a prop under the economy. The move suggests banks will quote a lower one-year Loan Prime Rate at Thursday’s fixing for a second month in a row - providing more support for a slowing economy, according to Bloomberg Economics analysts Chang Shu and David Qu.
Beijing has made economic “stability” a priority this year before a meeting in the fall where President Xi Jinping is expected to be confirmed as leader again, suggesting the government will take more stimulus steps to spur growth.
Trade was a bright spot last year, with exports rising to a record $3.36 trillion for the whole of 2021 on stronger demand for Chinese goods from the US, Europe and Asia.
The economy expanded 1.6 per cent on a quarter-on-quarter basis in the final three months of the year, faster than a revised 0.7 per cent in the previous three months.
The People’s Bank of China exceeded market expectations for stimulus by cutting two key policy interest rates before the GDP release. It cut the one-year medium-term lending facility rate to 2.85 per cent from 2.95 per cent and lowered the seven-day reverse repurchase rate to 2.1 per cent from 2.2 per cent. It also injected more liquidity by offering 700 billion yuan ($110 billion) of MLF loans, exceeding the 500bn yuan maturing, and added 100bn yuan with seven-day reverse repos, more than the 10bn due.
Chinese stocks rose following the rate cuts, with the benchmark CSI 300 Index up as much as 0.9 per cent after falling in the previous two days. The yield on 10-year sovereign bonds trimmed its drop to 1 basis point at 2.78 per cent as of 10.04am local time, after falling three basis points in response to the rate reductions.
Industrial output rose 4.3 per cent in December from a year earlier, versus the median forecast of 3.7 per cent. For the full year, it went up 9.6 per cent. Output is likely to be weak this month due to the coming Lunar New Year break, disruptions from stringent virus containment measures in Xi’an, Tianjin, some cities in Zhejiang and elsewhere, as well as production curbs imposed on heavy industries in northern China to ensure blue skies for Beijing’s Winter Olympics.
Retail sales growth slowed to 1.7 per cent in December from 3.9 per cent in November and versus an estimate of 3.8 per cent. Total sales rose 12.5 per cent in the year. While catering revenue and offline retail sales stayed under pressure from the pandemic, holiday shopping towards the year-end and an early Spring Festival likely provided some support.
Fixed-asset investment was 4.9 per cent bigger in 2021 than in 2020, with property investment 4.4 per cent larger and infrastructure investment expanding 0.4 per cent and spending in the manufacturing sector up 13.5 per cent.
Although authorities have moved to ease some of the restrictions on real-estate funding, the effect has yet to be reflected in the numbers. Growth in infrastructure investment was also slow to pick up despite the central government urging the provincial and local governments to borrow and spend.
The jobless rate was 5.1 per cent at the end of December.