China will grow 8% in 2021 and 5.1% in 2022: World Bank

Beijing, Dec 22 (EFE).- China’s economy will grow 8 percent in 2021 and 5.1 percent in 2022, according to the World Bank, which reduced its forecast for this year by half a percentage point compared to its previous predictions.

According to a Wednesday report, China’s economic activity experienced a “strong rebound” in the first half of 2021 but stalled in the second half of the year.

China’s GDP slowed in the third quarter, according to official data, growing by 4.9 percent after the gains of 18.3 percent and 7.9 percent recorded in the first two quarters of 2021.

The World Bank said the slowdown is due to factors such as the recurrent Covid-19 outbreaks, which “complicated” the resumption of the services sector, and to a greater regularization of the authorities in the real estate and financial sectors.

“All this led to downward pressure on private consumption and investment offset by stronger exports than expected given the robust external demand,” according to the World Bank, adding that electricity cuts have also influenced the economic performance of 2021.

The World Bank expects China’s GDP to reach 8 percent this year, 0.5 points less than in its previous predictions, and 5.1 percent in 2022 due to “a less favorable base effect and a lower export contribution,” and “the government’s efforts to deleverage.”

The agency said its report starts from the premise that the country will continue with its policy of “zero cases” of Covid-19, implying strong restrictions in areas where cases are detected or keeping borders practically closed.

“This strategy requires continued containment measures, but we expect domestic demand to continue to gradually resume,” it said.

However, the World Bank said new coronavirus variants, such as omicron, could lead to “greater restrictions and greater interruptions in economic activity.”

“In addition, the Chinese economy is also vulnerable to disruptions in supply chains, which could be more persistent than expected. This would contribute to higher inflationary pressures,” according to the World Bank.

Authorities, according to the text, will prioritize managing financial risks in the real estate sector, whose investment will remain moderate.

“In the short term, authorities must address excessive leverage in the real estate sector, but they must also provide liquidity to the system to avoid contagion,” it said.

In the medium term, it is about achieving China’s long-awaited transition to high-quality, consumer-oriented growth.

“The government has reacted by strengthening the role of the state, whereby market-oriented reforms have limited progress,” the organization said. “The private sector has been hit by the pandemic and the latest restrictions on the technology or education sectors have created uncertainties among investors.”

The World Bank said it recommends that China direct growth of external demand to domestic demand, from traditional investment – such as infrastructure – to consumption, from the state to the private sector and from an economy based on coal to low emission fuels.

This would require “structural reforms” that include opening sectors that remain protected, eliminating restrictions on labor mobility or introducing progressive tax reforms and better social safety nets.

On Dec. 13, Chinese Premier Li Keqiang spoke about the country’s economic ambitions with World Bank President David Malpass, before whom he promised precisely “reforms and adjustments” during a virtual meeting.

However, Li said “China will put stability first” next year and, in the face of downward pressures, promote “prudent” macroeconomic and “proactive” fiscal policies.

In November, the communist party warned of an “increasingly complicated, discouraging and uncertain foreign environment,” and underscored the “strong resistance” of the Chinese economy to claim “confidence” to “face directly” the difficulties. EFE

jco/lds