China | Unsynchronized business cycle calls for unsynchronized policy cycle

Summary

2021 Q4 GDP outturn together with December real economic indicators again confirmed the growth slowdown, calling for more easing measures in 2022.

Key points

• Key points:
• The 2021 Q4 GDP decelerated to 4.0% y/y from 4.9% in Q3, concluding China’s 2021 GDP growth at 8.1% and the average of 2020 and 2021 GDP growth at 5.1%.
• On the supply side, industrial production picked up to 4.3% y/y from 3.1% y/y in the previous month, benefiting from the eased electricity crunch and China’s self-sustained supply chain which to some degree solved global supply disruption domestically.
• On the demand side, both fixed-asset investment (FAI) and retail sales remain lackluster.
• China’s unsynchronized business cycle and inflation cycle call for an unsynchronized policy cycle. The slowdown of China’s economic growth with an unbalanced structure will prompt the authorities to deploy more pro-growth fiscal and monetary policy initiatives to stimulate growth in 2022.
• Look ahead, main growth headwinds of 2022 include the real estate slowdown, the deceleration of exports which used to be the main engine of growth as well as the ever-higher economic cost of maintaining “zero tolerance” of the pandemic.

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