China must be the ballast to lead global economic growth
Artwork: Chen Xia/GT
Faced with increasing headwinds to stabilize economic growth, China still has room to strengthen policy support, especially fiscal stimulus, to revive economic activity by stimulating market supply and demand, which recently showed clear signs of weakness.
To work in tandem, the country must overcome a lingering dilemma surrounding control of the COVID-19 pandemic. A balance between coronavirus suppression and economic development should be struck quickly, as the highly infectious but less deadly variant of Omicron continues to spread sporadically across the country.
Currently, there is a need for the government to crack a hard nut in an effort to bolster public morale and business confidence, taking immediate and effective measures to drastically reduce coronavirus infections in Shanghai, the largest and most important industrial center of China. The city of 25 million people has been closed for almost four weeks now, creating an increasingly severe impact on the flow of the supply chain in the country.
Omicron’s daily workload in Shanghai averaged more than 18,000 last week, troubling overall market sentiment. Only after community transmissions and infections of the virus in the city are reduced and extinguished, could large-scale manufacturing activity restart, generating much-needed parts and components for tens of thousands of chains. assembly in the Yangtze River Delta Industrial Zone – a major driver of China’s economy.
Suffering from high infections and Shanghai’s continued lockdown, China’s A-share market was beaten again last week. On Friday, the Shanghai Composite stock index plunged more than 500 points in less than four months, from more than 3,600 points at the start of this year. The stock prices of many companies have been cut in half. The evaporation of tens of trillions of yuan of investor wealth will inevitably undermine household consumption and weigh heavily on the country’s GDP growth.
The country’s 4.8% economic growth rate in the first quarter of 2022 was above consensus forecasts, thanks to robust consumption by Chinese consumers and booming exports around the Spring Festival holiday in early February.
However, retail consumption showed an inverted trend and contracted in March as relentless resurgences of Omicron in Xi’an, Shenzhen, Changchun, Shanghai, Suzhou and other metropolises led to strict restrictions in pandemic cases that have hampered the free movement of people and hampered the consumption of goods and services. as well as industrial production.
In the latest World Economic Outlook published last week, the IMF estimated that China’s GDP would grow only 4.4% in 2022, 1.1 percentage points below the target of the Chinese government of about 5.5% set at the annual session of the National People’s Congress.
The IMF said China still has room to dip into its policy toolbox to ease monetary and fiscal policy and inject more liquidity into the system to help avoid a credit crunch as a result of the market slump. scholarship.
And, to curb a rapid decline in fixed asset investment, the Chinese government should not hesitate to stick to the proactive fiscal and monetary policy by channeling more public funds and private investment into important areas of the economy. economy, including infrastructure, high-tech innovation and industrial digitization projects and social protection. Policy support could include the provision of direct transfers to vulnerable households.
New technology industries such as new energy vehicles, artificial intelligence, industrial robots, and 5G-powered mining, transportation, restaurant, and entertainment businesses will continue to provide a strong source of economic growth. Technologies that help China move closer to carbon neutrality will also provide support for growth.
Additionally, the country is expected to vigorously develop its real estate sector, another strong driver of the economy, which has suffered throughout 2021 due to tougher government regulations to rein in prices. As a result, some property developers, including Evergrande Group, defaulted on repayment of its debt. In 2022, the government must support the real estate sector and help stimulate sales of commercial properties to energize this important sector.
By all metrics, China faces far less pressure to rein in inflation than other economies, such as the United States and many European countries. Thus, the People’s Bank of China, the central bank, should be bolder in reducing commercial lenders’ reserve requirement ratios and benchmark interest rates to ensure sufficient liquidity in the money market, in order to reduce financing costs. borrowing from tens of thousands of Chinese companies.
China recorded annual real GDP growth of 8.1% in 2021, one of the highest rates in the world. For most countries, that would be an enviable achievement. However, for China, this return to high growth was largely a consequence of the rebound to growth of a meager 2.3% in 2020. Therefore, more careful efforts should be made this year by the country. in order to achieve the real growth of about 5.5%. rate.
In addition to the COVID-19 pandemic and the tariff war between the United States and China, two other uncertainties are emerging on the global horizon that could have profound implications for the recovery of the global economy in the sense of large. One is the conflict between Russia and Ukraine, which could drag on and even escalate into something like a direct confrontation between the US-led Western alliance and nuclear-armed Russia.
The other is the increasingly hawkish moves by the US Federal Reserve to raise interest rates to control the country’s runaway inflation. Higher rates in the United States will undoubtedly attract more capital to Wall Street. Thus, monetary tightening by the United States will continue to create a highly disruptive ripple effect on the stability of bonds and equities in developing economies, including China. And it deserves the attention of policy makers.
China should be the ballast to lead growth. The global economy is becoming increasingly integrated, as any shift in the public health, geopolitics and macroeconomic environment – reflected by the pandemic, the Ukraine crisis and soaring inflation in the United States – must have an impact on China’s growth prospects. But as the world’s second-largest economy, continued robust growth is important, not just for China itself but for many other countries.
The author is an editor at Global [email protected]