China promises measures to stabilize the economy in 2022

China is expected to add stimulus to stabilize growth next year, and several ministries vowed to take more proactive measures to reverse the slowdown caused by the worsening property downturn, consumer weakness and the coronavirus.

As downward pressure on the economy mounts, ensuring stability has become the top priority of the top leaders for the coming year, and they called on all regions and ministries to share responsibility for achieving that goal. In response to this call, the central bank committed to proactively introduce monetary policies that favor economic stability.

The People’s Bank of China will use a series of monetary policy tools to maintain “reasonable and ample” liquidity and ensure that credit growth is stable, according to a statement released Monday night after the bank’s 2022 planning conference. On the same day, the Finance Ministry announced that it will proactively implement fiscal policies to stabilize growth, with further cuts in taxes and rates expected in 2022.

China’s economy has slowed in recent months, with the housing market collapsing affecting indebted developers and also depressing industrial production, causing home prices to fall, and weakening investment and private consumption. The appearance of the omicron variant is an additional threat to the economy, as it could affect export demand and the tightening of restrictions in the country could further hurt spending.

Last month, residential property sales and new home acreage started by real estate developers fell about 20% from a year earlier, slowing the pace of global investment spending. Retail sales growth slowed to 3.9% in November from a year earlier as people stayed home from new virus outbreaks, while industrial production rose 3.8%.

Earlier this month, the People’s Bank of China allowed banks to lower the benchmark lending rate by five basis points after releasing 1.2 trillion yuan (US $ 188 billion) of money by reducing the amount of funds banks hold. they must keep in reserve. It also lowered the interest rate on the small business lending program. Credit growth recovered in November after slowing for nearly a year.

So far, the People’s Bank of China has taken a dovish approach to monetary stimulus, but expectations are growing that it will do more next new, especially if housing market woes continue and private consumption doesn’t pick up. Monday’s statement from the central bank comes after it pledged last week to be more proactive in using policy tools to further support the real economy in 2022.

The central bank will focus on making finance better serve the real economy in 2022, People’s Bank of China Governor Yi Gang said in an interview with Xinhua published on Tuesday. According to Yi, that means keeping credit growth stable so that the money supply and total social financing increase at the same rate as the nominal gross domestic product; optimize the loan structure with more loans to small businesses and green / technology companies; and constantly reduce financing costs.

Optimism about increased liquidity support from the central bank helped push 10-year bond yields below 2.8% on Tuesday afternoon China time, hitting the lowest since June 2020. That drop It came after the People’s Bank of China injected the largest amount of short-term cash into the banking system in two months, as demand for liquidity increased before the end of the year.

fiscal policy

Next year’s tax and fee cuts will exceed the estimated 1 trillion yuan (US $ 157 billion) in cuts in 2021, according to a statement from the Finance Ministry following its annual planning conference.

China has already allowed local governments to sell 1.46 trillion yuan in special 2022 quota bonds to speed up spending early next year. The central government recently told local authorities to use the money earned from those sales in a timely manner and to speed up project preparation, the 21st Century Business Herald reported Tuesday.

Similarly, China’s trade minister said the ministry “will do everything possible to stabilize the momentum of the recovery in consumption, and also to stabilize foreign trade and foreign investment.” We must “swiftly introduce new policies and measures that meet the requirements of cyclical and counter-cyclical adjustments,” Wang Wentao said in an interview on Monday.

However, rising raw material prices and rising labor and freight costs will make it difficult for China to keep its foreign trade growth stable next year, he said.