On Monday, January 8, as per custom, nine economic departments submitted their respective estimates for China’s Q4 and full year 2021 GDP growth rates to the State Council before the release of the official figures this Sunday by the National Bureau of Statistics.
While these submissions don’t always translate into the final NBS figures, Monday’s estimates ranged between 7.9% and 8.2% for the full year 2021 GDP, clustered close to market expectations of about 8.0%. The Q4 2021 estimates ranged between 3.8% and 4.2%, also close to market expectations, but a bit higher than the 3.3% consensus published on Bloomberg that seems a bit of an outlier on the downside.
Officials in Beijing maintain that China’s economy remains “on solid ground” going into the new year, with many still expressing confidence that the economy will grow by more than 5.0% in 2022. That, at least, is the plan.
For all that measured confidence in a soft landing, President Xi Jinping and China’s central government have also openly acknowledged that the country will face “threefold pressure” in 2022 from a contraction of demand, supply shocks, and weaker [consumer and business] expectations, and market expectations remain high for additional monetary policy stimulus to be front loaded into the first quarter of the year (see SGH 12/8/21. “China: Monetary Stimulus, and Boeing Politics”).
Stimulus on the monetary, fiscal, and credit fronts will, however, need to be managed, and a top official explains the term “cross-cyclical adjustment” that is so often used to describe Beijing’s economic policy response as “a term with a focus on boosting economic resilience in the short term while allowing policy leeway for future uncertainties, instead of resorting to a deluge of stimulus policies.”
“Aware of further challenges ahead for China’s economy to sustain stable growth,” he adds, “the State Council is set to walk a fine line between economic recovery and risk control. Meanwhile, it will maintain reasonably ample liquidity, strengthen cross-cyclical adjustments, and promote the consistency of macro policies [between] 2021 and 2022.”
The bulk of these stimulus measures for 2022 are being directed not at large corporations, but at “micro, small, and medium-sized enterprises (MSMEs).”
The Aggregate Numbers
Regarding fiscal and credit policies, extensive tax and fee cuts will continue to be implemented “to ease burdens on businesses and strengthen market vitality.”
China’s Ministry of Finance estimates that the total tax and fee reductions for 2022 will amount to the addition of around 1.55 trillion yuan into the system, an increase of about 300 billion yuan, or just under 25%, over 2021.
Given the new round of Covid-19 cases across China, with most businesses now facing additional market uncertainties, that fiscal stimulus will be frontloaded into Q1, where tax and fee cuts are expected to reach 400 billion yuan, 120 billion yuan higher that during the explosive, 18.3%, Q1 GDP growth period of 2021.
On the credit side, officials in Beijing expect that new loans in 2022 will exceed 20 trillion yuan and reach around 20.5 trillion yuan.
Given the expectation and hope that Q1 will mark the low point for 2022 growth, about 40% of that issuance, or 8 trillion yuan, is expected for the first quarter, up from 7.67 trillion for the same period last year.
Government entities at all levels are being urged by the leadership in Beijing to render more “direct and precise support to market entities” in 2022. That means targeting the poor, students, farmers, the self-employed, micro, and small businesses.
Actions introduced by the State Council over the last 30 days include allowing micro, small, and medium-sized enterprises in the manufacturing sector to defer certain tax payments for the fourth quarter of 2021, as well as providing small and micro enterprises severely impacted by the pandemic, floods, and raw material price hikes with additional lending support. The State Council has directed the People’s Bank of China to provide funds to local banks that issue loans to MSMEs and the self-employed, equivalent to 1% of the increase in their loan balances, to encourage additional such lending.
These actions also include a decision by the central government to incorporate “inclusive credit,” or microfinance, loans to MSMEs from the beginning of 2022 into the relending program for agricultural and small firms, and to allow the 400 billion yuan relending quota designated for MSME inclusive credit loans to be rolled over and expanded if needed. Our guess is that it will.