China’s economy has had a difficult start to 2022. A surge of Covid-19 infections across the country has resulted in lockdowns in several megacities. Tianjin, for example, has been suffering from a covid outbreak that started in late December and ran into 2022. The local government responded by imposing very strict lockdown rules, including mass testing, and banning almost all travel into and out of the city. This severely affected supply chains and some major manufacturers, including Samsung, Toyota, and Volkswagen, were forced to shutter their factories. This was further compounded by the fact that the Covid wave broke out just as many of these factories had begun to slow down before the Chinese New Year.

Key forecast revisions in China

In addition to this, many factories in Beijing and Hebei are facing weeks of shutdowns due to the fast- approaching Winter Olympics. The Chinese government is eager to put on a show for both China and the world and have ordered many factories in Beijing and Hebei to either cut production or close completely to combat the notorious winter air pollution in Beijing.

The recent Covid wave coinciding with both the Chinese New Year and Winter Olympics will stifle China’s economic growth in the first quarter of 2022.

China’s economy grew 8.1% last year, and while it is expected to continue growing, it will do so at a slower rate. Nearly all of China’s provinces have announced the targeted economic growth rate for 2022, but most have targeted lower than what they achieved last year.

The government has made stabilizing the economy a key priority in 2022 but faces the daunting task of deleveraging the real estate sector without harming economic growth.

Key Developments

China’s central bank has reduced various interest rates several times this year, including the five-year loan prime rate, which is closely linked to mortgage rates. The Ministry of Finance has also promised to support businesses by making further cuts to taxes and fees.

Read more about the economic outlook in China, including possible legal action against indebted property developer Evergrande, in this month’s China Market Monitor.


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