The Chinese New Year fell on 1 February. The most important and heartfelt festival for the Chinese people marked the entry into the Lunar Year of the Tiger, which opened in a unique way, as the Winter Olympics in Beijing also began on those days.
In 2022, however, there will be other important events for the Dragon’s economy. The crucial one will be the 20th Congress of the Chinese Communist Party, which in October will most likely confirm Xi Jingping as its leader, making him the longest-serving leader since Deng Xiaoping.
From an economic point of view, however, what 2022 can we imagine for China? “In order to try to make predictions for 2022, it is also necessary to look at what happened in 2021”, explains Filippo Fasulo, co-head of the geo-economics centre of the Institute for International Policy Studies (Ispi) and lecturer at the Catholic University of Milan. “At the same time, everything has to be assessed with a view to the next two very important events in Chinese politics: in October, it is very likely that Xi Jingping will be re-elected as General Secretary of the Communist Party; then in March 2023, the offices of state institutions will be renewed and it is just as likely that Xi Jingping will be appointed President of the People’s Republic of China again, given that a constitutional reform has also been made to eliminate the two-term limit”.
2021 was a good year for China, whose economic growth exceeded expectations. In 2021, the Gross Domestic Product increased by 8.1 per cent compared to 2020, which, unlike the negative figures in many European countries (in Italy, GDP recorded -8.9 per cent), was also better than in 2019 despite the outbreak of the pandemic. However, the Chinese economy experienced a slowdown in the last months of 2021: GDP growth in the fourth quarter of last year stalled at 4%.
“China’s entire economic policy is based on the relationship between two fundamental elements: exports and domestic consumption. For several years, China’s political class has been trying to grow the second component in order to reduce foreign dependence. Xi Jingping has also expressed himself several times in this way. However, while the West subsidised consumption during the pandemic, China acted counterintuitively by subsidising production. The resulting surplus production and falling demand led to a sharp increase in exports”.
What really matters is whether growth will be sustained by domestic consumption or exports.
Precisely because of the pandemic, policies that professed a greater focus on consumption were sidelined in favour of exports. In 2021, China’s trade balance (the difference between exports and imports) hit an all-time record: USD 676.43 billion.
Now China is relying on domestic consumption, “yet it still hasn’t picked up. In fact, these numbers are lower than in the pre-pandemic period. Not least because the effects of the ‘Zero-COVID’ policy to reduce infection are causing people to leave their homes less”, Fasulo comments.
“Beijing published its economic growth forecast for 2022 in early March. There is talk of 5–5.5%. However, what really matters is whether the target will be reached through domestic consumption or exports. This is the real challenge for 2022 for China and the Communist Party”.
Other factors will help define the challenge facing the Chinese economy in 2022. The Communist Party has already taken action on many of them. These include the real estate sector, where the crisis of the giant Evergrande has also caused much concern in the West. “It would appear that Chinese policy has succeeded in cushioning the risk of a financial bubble bursting, which seemed imminent at the end of August. It is clear, however, that the system has to change and guidance will come from the top”, explains Fasulo.
The construction sector is a pivot for the Chinese economy as it drives other sectors: local government funding depends on the sale or granting of building permits on land; glass and cement factories are major suppliers to construction companies; many Chinese families invest their savings in real estate.
According to Fasulo, “the other aspect of intervention, which is part of Xi Jingping’s project for common prosperity, concerns a greater attention to the redistribution of resources, which also involves a restructuring of Chinese financial markets, whose efficiency is much lower than that of Western markets”.
The campaign to regulate high-tech companies is set to continue and will not slow down, at least until the conclusion of the sensitive political appointments in October
The government has also regulated other sectors that are extremely rich and important for the Chinese economy, primarily the large technology companies. However, the relationship with big tech is twofold. Globally, virtually all governments in developed countries struggle to deal with these companies. In China, however, “every large company is a potential risk for political power, which wants to reduce any room for manoeuvre for other players. The campaign to regulate high-tech companies, which hit giants such as Alibaba and Tencent, starting in November 2020, is set to continue and will not slow down, at least until the conclusion of the sensitive political appointments in October”.
The problem of an ageing population also threatens China’s economic development. Fasulo considers it extremely complicated to intervene because it is first and foremost a cultural issue. “The Chinese are no longer used to having more than one child; changing this attitude takes a lot of time and effort”, she says. “Moreover, having children for Chinese families is very expensive: maintaining two or three without any form of state subsidy can be complicated”.
China’s 2022 is therefore an interweaving of many different issues, which cannot be addressed in a single way or by a single method. Economic growth will certainly not be lacking, but how it is achieved and distributed will determine China’s near future, starting with the policy choices that will be made from October.