The Chinese government is trying to stimulate the slowing economy.
Tingshu Wang/Reuters
- China announced its GDP grew 8.1% on-year in 2021, beating expectations.
- But fourth-quarter GDP slowed to 4.0% from 4.9% in the third quarter of 2021.
- The Chinese central bank has cut interest rates to stimulate growth in a politically sensitive year.
China announced that its economy grew 8.1% last year, beating expectations even as the COVID-19 pandemic stretched into its second year.
The growth rate was well above Beijing’s target of “above 6%” and 2020’s revised growth of 2.2%. Meanwhile, analysts polled by Reuters had forecast a 8.0% growth rate.
However, all is not well with the world’s second-largest economy. The Chinese government is warning of a “triple pressure of demand contraction, supply shock and weakening expectations” amid the spread of the Omicron variant, which has reached capital city Beijing.
Here are four key takeaways from the most recent report from China’s National Bureau of Statistics, released today. Importantly, the accuracy of some of the data in the report, including GDP figures, is called into question: Bo Zhuang, a China economist at Boston-based investment management firm Loomis Sayles, told Insider the headline GDP figure is “systematically inflated” due to how it’s calculated.
1. Growth in the fourth quarter of 2021 likely fell below Beijing’s tolerance level, prompting a rate cut
China’s GDP grew 4.0% on-year in the fourth quarter of 2021, marking a slowdown from 4.9% in the third quarter and 7.9% in the second quarter, according to official data.
Ahead of the economic data release this morning, the Chinese central bank unexpectedly announced an interest rate cut on policy loans — a growth-boosting move not seen since April 2020.
The rate cut is a sign that the Chinese government views its fourth-quarter GDP growth to be “below the tolerance level” of the authorities, said Zhuang.
Analysts polled by Reuters had expected a 3.6% growth for the fourth quarter, which means the official growth rate outperformed market consensus. But Beijing’s growth expectations for the final quarter of 2021 was likely around 5%, said Zhuang.
“That’s why they feel a need to stimulate in order to catch up to this 5% growth,” Zhuang told Insider.
2. Xi is under pressure to keep the economy strong as he prepares to seek a third term
China’s economy was turbocharged in early 2021 as the country started to recover from the pandemic, but the economy started to slow down in late September on the back of the Evergrande debt crisis and a power crisis. December retail sales growth also slowed to their slowest pace since August 2020.
Now, there are signs of new threats amid the Omicron variant, which have prompted Chinese authorities to act more aggressively by cutting the interest rate on policy loans, said Zhuang. About 70% of analysts polled by Reuters last week weren’t expected any change to the rate.
President Xi Jinping is under pressure to have the economy perform this year, as he is expected to seek a third term at the Chinese Communist Party’s 20th National Party Congress in the fall of 2022.
“He cannot afford to see GDP growth collapse. Reasonably high growth — i.e. 5% — is still politically correct for him, so that’s why the government is acting more aggressively,” said Zhuang.
3. China reported 8.1% GDP growth in 2021 — but it’s likely lower
Even though China reported 8.1% on-year GDP growth rate in 2021, the real two-year compound annual growth rate is likely lower, around 5.5% to 6%, said Zhuang.
However, it’s unlikely the central government was manipulating numbers, Zhuang said.
One issue with China’s economic data traces back to the quality of information submitted to the central government, as local governments sometimes inflate local GDP data to get more central government subsidies. Some investments are also reported twice if they involve two different provincial governments. Such issues result in a “constant error” for Chinese GDP data, said Zhuang.
The country’s methodology for measuring economic data has also not been updated in decades. For instance, many of the companies surveyed for economic data are large, state-owned enterprises and factories, and this sampling doesn’t capture the fast-growing services sector and the smaller enterprises, said Zhuang.
“Obviously, they need to revamp many of their survey samples,” he said. “They’re not representative of the Chinese economy anymore.”
4. Employees are working more hours, but China’s employment numbers don’t tell the whole story
Company employees work 47.8 a week — about 9.5 hours a day — data in the new report shows. However, that data is skewed because authorities only started including casual workers into its data collection in 2021, said Zhuang.
The number of hours worked per week has increased from the end of 2020, official data compiled by the CEIC shows.
While the National Bureau of Statistics data shows that employment was generally stable in 2021 and the unemployment rate in urban areas declined, the report doesn’t go into details, Zhuang said.
Economists recently told Bloomberg that China’s official unemployment figures don’t capture data like those who have been out of the job market for more than three months, or changes in the number of migrant workers.
Despite the steady unemployment rate, incomes have fallen since 2019, Zhuang said, citing official data.
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