On February 1st, China will celebrate the New Year and will come into the year of the Tiger. During two weeks, Chinese people will be in vacation but, due to the restrictive measures decided to impeach the pandemic to spread into the country, it will not be possible to travel into or outside the country as in the past. These measures have also be put into place to allow the Winter Olympic Games to going off as it was forecast between 4th and 20th February but with a limited public attendance and without any foreign spectator. Tourism and hospitality business, as everywhere in the world, will be affected but the consequences on the economic activity will be less heavy than elsewhere because household can consume more in their country and that would remedy to the slowing observed at the end of last year.
In 2021 China has known an 8.1% growth after 2.2% in 2020. These figures are year on year average and include high fluctuations from one quarter to another. Chinese growth has been the first one in the world to fall during 2020 1st quarter (-7%) due to the pandemic and then has known a slow rebound during the following three quarters before registering a spectacular one during 2021 1st quarter (+18%), followed by a slowing all along the year and a diminution to 4% during the 2021 4th quarter. So the Chinese economy is not starting the 2022 year with a rhythm as strong as in the past because, if on the short term the government policy, despite the international environment, has given good results, the Middle Empire is confronted with structural problems which could in the coming years affect its development.
The most remarkable success regards foreign exchanges which have reached 6 000 billion dollars in 2021, i.e. 16% of the world trade, rising by 21% year on year, which brings a denial to these who have pretended the country was coming into a period of isolation or of a withdrawn attitude. These results are all the more spectacular than they occurred despite the restrictions and the custom duties imposed by the previous American president and confirmed by Joe Biden. That has not prevented foreign investments in the country to reach 179 billion dollars in 2021 and the exports 3 360 billion sending the trade surplus to 676 billion dollars, a 26% increase on the previous year. This result has been obtained despite the difficulties occurred in the logistic with the saturation of ports and containers and the increased sea transportation costs which have result from them. So it must not be underestimated.
35% of Chinese exports are realized by foreign companies established in the country. Even if this figure is in a deep fall for 15 years (it was near 60% in 2008), it confirms the essential role of the Chinese economy in the international enterprises supply chains. These ones are not yet neglecting the local market because they have achieved there a turnover of about 1 000 billion dollars. So the Covid-19 pandemic has not made globalization declining and has rather strengthened the China position and not the contrary as we have frequently heard. These points have been extensively exposed by the Chinese President in the speech he has prepared for the Davos Forum. So there is a gulf between the political messages, notably in the U.S., calling to a toughening of the trade relations with China and the enterprises practices, notably the American ones, which grant a major place to the Chinese market and to their production tools implanted there.
Inflation, despite the commodities prices increase, remained very moderate in 2021 (0.9%), largely thanks to the different regulations which affect prices formation. Growth has not only been drawn by exports. Household consumption, which represents two third of the total demand has increased by 7%, but the trend is significantly slowing. So in December, retail sales rose only by 1.7%. This is one of the reasons why the Chinese central bank has just decided to reduce by ten basis points its One-year rate, the first reduction for two years. Unemployment in urban zones, which is the unique official indicator, has diminished since its rate fell from 5.6% in 2020 to 5.1% in 2021. As a whole, the Chinese economy has better gone through the current crisis that the other major economies but it is today facing structural problems able, if they are not solved, to affect its future prospects.
The birthrate fall and the lack of reaction of the population to the first measures decided by the government are weighting on the country and on its economic development a real threat. 10.62 million births have been registered in 2021 against 12 million in 2020. This fall can’t entirely be explained by the consequences of the pandemic because it inscribes itself in a lasting trend which results both from the evolution of the way of life of the young generations and from the one child policy. The population is stabilizing and would, except if there is a change, come into an ageing phase. The authorization for families to have a second child and now a third one has not, until now, make behaviors evolving.
The sanitary crisis has not more allowed the Chinese economic model to evolving. The country did not want any more to be only the “factory of the world”. Yet that position has been strengthened during the crisis, even if the plants have also largely supplied Chinese household with consumer goods with a higher and higher quality. In the high tech sectors, world giants have appeared but the political authorities will to reach a shared prosperity drove them to pronounce financial sanctions against their creators, which could discourage entrepreneurs in the future. So a good balance is still to be found between the economic dynamism generated by innovations and the sharing of the wealth they create and it will be a major political challenge for the coming years and a necessary condition for the growth pursuit.
At last, as all the countries after a fast development phase, China is confronted with private financial unbalances, especially in the real estate sector. The crisis of the largest property developer of the country, Evergrande, is a signal of that and it is certainly not the only one to have difficulties. Yet, it is few likely that the Chinese authorities make the same mistake than their American counterparts when they left Lehmann Brothers go into bankruptcy, which was at the origin of the sub-primes crisis. The State has at its disposal the necessary tools to avoid an insolvencies wave which would harm the whole banking system. But restrictive arrangements will be necessarily adopted to remedy to that situation, which will provoke a significant slowing of the construction sector which was until now an important engine of the Chinese growth.
With a weakening birthrate, the evolution of its growth model which is slowed and sectorial financial problems, the Chinese economy is confronted now with the problems all the advanced economies knew before it. But the results obtained for forty years leave few doubts on its ability to surmount them and to go through a new stage.