Politics will drive economic performance in 2022

CHINA FINANCIAL - Report 07 Jan 2022 by Michael Pettis

Special points to highlight in this issue:

* The 20th National Congress of the Chinese Communist Party is scheduled for October or November of this year. This makes 2022 an especially important year politically for the Beijing leadership, making it unlikely that they will tolerate a poor economic performance. Although there has been no formal GDP growth target set for the year, I expect the informal target is around 5.5 percent.

* To achieve this target, Beijing will almost certainly have to ease credit to the property sector and accelerate local government spending on infrastructure. There is strong evidence that they have already begun to do both.

* There are two important risks to achieving this target. The first is the deteriorating sentiment in the property market. Unless Beijing can turn this around, it can easily become self-fulfilling.

* The second is Beijing’s zero-Covid policy, which means an unexpectedly virulent outbreak can cause a very heavy-handed shutdown of part of the economy.

Now read on...

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