China's Q4 and 2021 GDP grow faster than expected

[BEIJING] China's economy rebounded in 2021 from its pandemic-induced slump helped by robust exports but weak consumption at the year-end and a property slowdown point to cooling momentum and the need for more policy support.

The central bank on Monday cut loan rates to cushion the world's second-largest economy as its confronts headwinds from a rapidly cooling property sector and sporadic Covid-19 outbreaks.

Several Chinese cities went on high Covid-19 alert ahead of the Lunar New Year holiday travel season, as the Omicron variant reached more areas including Beijing.

The economy grew 8.1 per cent in 2021, faster than a forecast 8.0 per cent and well above a government target of "above 6 per cent" and 2020's revised growth of 2.2 per cent.

Gross domestic product (GDP) expanded 4.0 per cent in the October-December period from a year earlier, according to National Bureau of Statistics data, faster than expected but still its weakest pace in one-and-half years. Growth was 4.9 per cent in the third quarter.

On a quarter-on-quarter basis, GDP rose 1.6 per cent in October-December, compared with expectations for a 1.1 per cent rise and a revised 0.7 per cent gain in the previous quarter.

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China's economy got off to a strong start in 2021 as activity rebounded but it has lost steam due to a property downturn, curbs on debt and strict anti-virus measures which have hit consumption.

China's central bank unexpectedly cut the borrowing costs of its medium-term loans for the first time since April 2020, leading some analysts to expect more policy easing this year to guard against developers' mounting risk of default.

The People's Bank of China (PBOC) said it was lowering the interest rate on 700 billion yuan (S$150 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points to 2.85 per cent from 2.95 per cent in previous operations.

"Economic momentum remains weak amid repeated virus outbreaks and a struggling property sector. As such, we anticipate another 20 bps of cuts to PBOC policy rates during the first half of this year," said analysts at Capital Economics, in a note.

PROPERTY, RETAIL SALES SLOW

China's property market has slowed since June as regulators stepped up their deleveraging campaign against the bloated sector, triggering defaults at some heavily indebted companies.

Property investment dropped 13.9 per cent in December from a year earlier, falling at the fastest pace since early 2020, according to Reuters calculations based on official data. Investment grew 4.4 per cent in 2021, the slowest since 2016.

Weak consumption data also clouded the outlook, with retail sales in December missing expectations with only a 1.7 per cent increase from a year earlier, the slowest pace since August 2020.

Analysts in the poll had expected them to grow 3.7 per cent after rising 3.9 per cent in November.

"The biggest challenge this year for policymakers is how to stabilise the economy at a 5-5.5 per cent range against the backdrop of dynamic zero-Covid policy," said Nie Wen, chief economist at Hwabao Trust in Shanghai.

A bright spot was industrial output, up an annual 4.3 per cent in December, picking up from a 3.8 per cent increase in November, and better than a 3.6 per cent increase in a Reuters poll.

Fixed asset investment rose 4.9 per cent in 2021, compared with the 4.8 per cent increase tipped by analysts and 5.2 per cent in the first 11 months of the year.

Booming shipments to coranavirus-hit economies overseas were a key boost to China's growth last year, with net exports accounting for more than a quarter of GDP growth in Q4 and the country logging its biggest trade surplus in 2021 since records started in 1950.

The outsized role that net exports played in last year's GDP growth also underscored the relative weakness in other drivers.

By contrast, net exports were a drag on overall growth in 2018, when the economy relied more on consumption and investment.

However, the support from export growth may not last. It has been slowing as an overseas surge in demand for goods eases and high costs pressure exporters.

REUTERS