Record growth for ten years for China but the economy remains under pressure

Record growth for ten years for China, but the economy remains under pressure

China on Monday announced record growth for a decade with GDP up 8.1% in 2021. However, the Covid-19 is still weighing on the recovery of the Asian giant, putting the country's economy under pressure.

Record growth for ten years for China but the economy remains under pressure

China has largely recovered from the initial shock of the pandemic but sporadic outbreaks continue to disrupt economic activity. And the “zero Covid” policy comes with a high social and economic cost. The service sector (leisure, tourism, hotel and catering, transport, etc.) has thus still not returned to its pre-pandemic level.

The recovery is also weakened by a surge in the price of raw materials and a crisis in real estate with the setbacks of the promoter Evergrande, on the verge of bankruptcy.

The Chinese economy is facing "triple pressure", Ning Jizhe, an official with the National Bureau of Statistics (NBS), admitted to the press on Monday, referring to a contraction in demand, tensions in supply chains and lowered economic objectives.

A global barometer

In this context, China nevertheless posted growth of 8.1% last year. This is its fastest pace since 2012. Beijing had set itself the target of 6% growth for 2021.

In the fourth quarter, the growth of the Asian giant however lost steam (+4% over one year), after 4.9% in the previous one. In the first quarter, GDP still stood at 18.3%. A high rate linked to the weak basis of comparison with the beginning of 2020 when the epidemic paralyzed activity.

Although subject to caution, the official growth figure is still scrutinized, given the weight of China in the global economy. The country thus appears as a barometer of recovery.

In 2020, China was one of the few economies to post positive growth (+2.3%), when the Covid-19 struck down the rest of the world. However, this rate was the lowest in four decades.

Difficulties

The pressure of draconian health measures is such on the economy that the Chinese power will have to “reconsider its zero Covid policy”, suspects Yue Su, of the Economist Intelligence Unit firm.

In a sign of the difficulties facing the Chinese economy, the central bank lowered a key interest rate on Monday for the first time since April 2020. The measure aims to ease the pressure on small and medium-sized financial institutions to encourage them to grant more credit, on more favorable terms, to companies.

On the employment front, the unemployment rate, measured in China only in urban areas, stood at 5.1% in December (against 5% a month earlier). Particularly watched by the authorities, this figure excludes from its calculation the millions of migrant workers, weakened by the pandemic.

As for investment in fixed assets, its growth slowed sharply in December, to 4.9%, according to the SNB.