trimming its sails for a politically smooth 2022, Beijing is rebalancing short- and long-term strategy; yet shifting course will come at a cost
After a torrid 2021 of regulatory tightening threatening domestic growth and global finance markets, the pursuit of stability marked the regular December policy planning conclaves. Yet a roster of tensions and setbacks may see more drama than stability in 2022. Weak demand, supply-chain gaps and pessimistic expectations are dragging growth, admitted the CEWC (Central Economic Work Conference), the annual end of year assembly that sets the economic tone for the coming year. The Economic Blue Book, a yearly think tank review, listed further underlying issues: slow recovery of consumer spending, lack of jobs for the young and middle-aged and high upstream prices. It forecasts official GDP growth for 2022 falling to 5.3 percent—lower than the 8.1 percent predicted for 2021, and the pre-COVID 6 percent. And the 20th NPC (National Party Congress), at which Xi will extend his tenure, looms in Q4.
battening down the hatches
Ahead of a Party congress, the PRC enters a 'sensitive period'. Turmoil, scandal and speculation are in the air as senior personnel jostle to shift and realign their standing. Yet the stability imperative will likely limit any political snakes and ladders ahead of the 20th congress. Propaganda/ideology campaigns will be in full force both on- and offline. Attracting attention are those fishing in troubled waters, like Sima Nan 司马南 (see profile), looking to twist 'common prosperity' into a radical rebalancing of society; a threat to Xi Jinping’s stability.
With Xi tipped to launch more elements of his 'New Era' at the congress and the 13th NPCSC (NPC Standing Committee) ending its term in early 2023, the constant flow of legislation is unlikely to let up. Tax reform, critical to long-term development and integral to Xi's common prosperity campaign, will be one issue on the agenda. Real estate tax pilots will likely be expanded in 2022. These first steps to reforming income tax law will be worth watching for.
Taking up cudgels for common prosperity, CEWC underscored falling living standards. Hukou reform gets top billing as a magic bullet to ease inequality, yet the political and financial costs give local officials the jitters and keep them from pulling the trigger. New to the mix, though, are possible changes to fiscal transfers to be piloted in the Zhejiang common prosperity demo. Beijing is adapting these transfers to better align payments to the real, not the notional, population. This should ease financial pressure on localities with growing migrant populations who must invest in social infrastructure.
To combat unemployment, fiscal and monetary measures are easing. Over 10 million students will graduate in 2022, up some 17,000 y-o-y. Over 14 percent of the 16–24 age cohort were jobless in November 2021, tripling the average urban rate. The 20–24 age group of graduates is expected to be even worse off, warns NBS (National Bureau of Statistics). The CWEC stressed that infrastructure and fiscal spending can help stabilise the economy; the central bank has sent several easing signals that are likely to come into effect in H1 2022. This is good news for domestic companies that struggled through 2021 and ever better news for powerful companies with the necessary political and financial ties to maximise the benefits.
looking abroad
A major concern heading into 2022 is the state of trade. With repeated COVID outbreaks complicating supply chains and economic recovery in other countries, the PRC is helped by a huge trade surplus. Exports should stay strong in H1, but are likely to decline in H2 as supplies and acceptance of vaccines spread around the globe (the same, mind, was predicted for 2021).
Despite the value of trade in the COVID recovery, Beijing is sober about long-term trends. Self-reliance is still the call, not least in agriculture. New ‘safety lines’ for food imports must be drawn to insulate the nation from global shocks, exhorts Xi. While complete self-reliance is unrealistic, efforts will focus on diversifying import sources and restructuring supply chains.
Regional ties are front and centre for trade strategy. RCEP entered into force on 1 Jan 2022, promising to speed up regional trade integration. Beijing will likely keep pushing to join the groundbreaking DEPA (Digital Economy Partnership Agreement) and CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).
The drive for stability is slowing the crackdowns on monopoly businesses, offers international investors some respite. An earlier scare-term, ‘unruly expansion’ of capital was replaced at CEWC with talk of its ‘wild growth’, to be offset by ‘capital traffic lights’. The first of these has been rolled out: firms can launch IPOs on foreign exchanges, including VIEs (variable interest entities) and firms on the negative foreign investment list. They are, however, subject to national security and other reviews. Despite a calmer environment, some test cases for the new Anti-monopoly Law and Personal Information Protection Law are likely to set enforcement precedents.
yellow light for green development
The paramount objective for the energy sector in 2022 is energy security; decarbonisation comes second. Policy-induced supply-demand mismatch and inefficient pricing mechanisms led to the 2021 power crisis; Beijing is determined to prevent a sequel in 2022. Coal, while not without its detractors, is still deemed the most stable energy source, for now. The push for stability will slow the shift from coal in 2022; strict phase-down policies are unlikely. This does not, however, imply a pause on carbon neutrality. Low carbon energy systems will be rolled out faster than ever, but reliance on coal-fired power as the ballast will remain until clean, green alternatives can replace it.
The impacts of this slowdown on green development will be widespread. Productivity-enhancing reforms in agriculture will be prioritised; thornier issues such as emissions reduction in the sector may take a backseat. Implications for heavy industry are complex. Strides were taken in 2021 to bring steel output down y-o-y. Crude steel output will decline 2.3 percent y-o-y in 2021, 2.2 in 2022, forecasts the Metallurgical Industry Planning and Research Institute. Yet monetary easing, increased fiscal spending and a lax emissions stance offer producers more leeway.
the lull
In balancing short- and long-term goals the former are likely to receive favour in 2022, but this will not be without headaches. Too much easing would undo the progress made in 2021, creating new bubbles, not least in real estate. Mixed signals on how far to reverse some measures, coupled with increased financial pressure on local officials, could well drive deeper involution, frustrating higher-ups. Excessive backsliding in 2022 would make 2023 even bumpier than 2021. The abrupt policy rethink heading into 2022 will, given habitual overcorrection, foil Beijing’s hopes of a drama-free 2022.
profiles
Xi Jinping’s Economic Thought on Socialism with Chinese Characteristics for a New Era 习近平新时代中国特色社会主义经济思想
The economics of Xi Thought was given an airing in December 2021. Taking tension between renewed popular 'demand for a better life' and 'unbalanced and inadequate development' as the critical failing of modern China, the solution seems to be to break the problem into smaller bites. In slogan form
- developmental momentum: innovation
- developmental imbalance: coordination
- relationship between development and the environment: greening
- international communications: opening
- income gap: sharing
Development must not only focus on GDP growth; the five measures cited must all be weighed together, stressing that the idea of 'one size fits all’ must be replaced in decision making. Neither blind faith in the market nor a return to a planned economy are sanctioned. A more robust, effective government must be developed to eliminate forces that seek to restrain market efficiency. Development must aim for common prosperity and an improvement in people’s livelihoods.
Sima Nan 司马南 | journalist, TV personality
In late 2021, Sima Nan become a PRC internet opinion leader by repeatedly exposing and criticising the Lenovo company, citing its loss of state-owned assets, executive compensation, etc. He gained over 5 million followers on Douyin, 1.5 million on Weibo and over 1 million on station B (Bilibili): the fastest rise in internet followers. But his attacks were criticised by Hu Xijin 胡锡进, then editor in chief of the Global Times, himself a renowned pro-Party populist.
Li Yong 李永 | China Association of International Trade expert committee vice director
In a world of uncertainty, China’s stability is of utmost importance, says Li. Food security is the baseline; losing control of it conjures the spectre of social chaos and the end of economic growth. Growing ag trade scepticism in officialdom is explained by pandemic-induced supply chain volatility and growing international tensions, he says. Rising global grain prices add further urgency. Improving productivity and grain planting structure is imperative, yet he predicts imports of feed grains such as soybeans will continue in the near future.
Zou Ji 邹骥 | Energy Foundation China president
For Zou, slowing the pursuit of carbon neutrality was not the point of the CEWC agenda. Shifting ‘dual control’ targets to carbon emissions will, he claims, benefit renewables, promote energy conservation and pressure industries to step up their green transition. Absolute carbon emission caps are needed now to prepare for the transition to emissions-based targets; monitoring, reporting and verification systems must be refined. Zou warns against a crude disaggregation of dual control targets for lower administrative levels: all tiers should use market-based means to allocate emission quotas.