Looser monetary policy plus investment will bring stability
GDP rose 8.1% y/y in 2021, up 10.6% from 2019. But industrial growth declined across quarters, indicating further growth pressure, especially when Omicron outbreaks are leading to frequent lockdowns in cities.
Investment grew only 4.9%, far less than in normal years. Consumption is weak. Social consumption goods’ retail sales had an adjusted annual growth rate of 2.4%. Strong trade is the major growth factor. Exports rose 21.4% from 2020, and imports rose 21.5%. Both increases are the highest since 2014. Producer prices boomed in 2021, but since October have ended their appreciation. We forecast that the PPI’s fast appreciation period has ended. CPI was low, and grew 1.8% y/y in Q4, but is expected to pick up soon, constraining further monetary easing.
The 0.2% drop in new home prices at the end of 2021 was the biggest fall seen in China since February 2015. The Evergrande debt crisis received widespread attention. We believe real estate risk won’t be systematic, and that real estate prices won’t collapse, given government’s intentional deleveraging of real estate firms, the still-strict house purchase restriction, and the fact that China’s 70 largest cities have seen only mild housing price increases over the past decade.
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