China economy collapse: Why China could face major problems in 2022

China: Xian enters lockdown after Coronavirus cases surge

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The bureau released the results of its review early this morning, noting a GDP expansion of four percent in 2021. But the continuing pandemic held back its potential, as the rate had grown at its slowest pace in 18 months. The People’s Bank of China cut an instrumental lending rate as the economy failed to match the 6.5 percent growth at the same point in 2020, and several factors could hold it back again in 2022.

Zero Covid policy

The Chinese government has zero tolerance for domestic Covid cases and has dramatic measures designed to torpedo transmission.

Rolling lockdowns are not uncommon, with some cities forced to endure weeks of mandated quarantine and testing.

Restrictions have proved make-or-break for many of the country’s high achieving businesses, as the measures strangle supply chains and worker manoeuvrability.

In early 2022, China faces an influx of people during Lunar New Year and Winter Olympics, forcing officials to crunch at-risk regions.

Incomplete data

Officials have found Omicron cases domestically, but economists state the bureau failed to include the full extent of the variant’s impact in its report.

Yue Su of the Economist Intelligence Unit told the BBC the estimated GDP figure left out the “impact of domestic spread” of the variant.

She said the service industry will have taken the brunt of the latest outbreak.

If the bureau released another report accounting for this further down the line, it may find growth was slower than currently estimated.

The Winter Olympics

The Winter Olympics, scheduled for February 4 this year, has led Chinese officials to clamp down on areas close to host city Beijing.

The approximately 14 million residents of Tianjin, 100km from the city, are currently living under mandatory testing.

Enhanced pre-games measures could end up piling even more pressure on the economy as the competition itself could come with diminishing returns.

While hosting the Olympics would traditionally provide a valuable cash boost for a nation, several participants toying a boycott.

Activists are calling for competitors to pull out in protest of China’s human rights records, including the oppression of pro-democracy protestors in Hong Kong and abuse of Uighur Muslims.

No country has yet committed to a complete boycott, but the US, UK, Australia and Canada have withdrawn diplomatic presence, stating their officials will not attend ceremonies or events.

The property sector

China’s vast economy is, in part, propped up by a high performing property sector accounting for roughly 30 percent of its total output.

As with the rest of the world, the pandemic has squeezed this too, with the responsible factors still pursuant in early 2022.

Chinese people have accumulated more debt, leading to lower consumption, a housing downturn and slower growth.

One policy adviser told the Financial Times they are “all connected”, leading to anxious conversations behind closed doors.

Local ministers have voiced – both publicly and privately – that they will struggle to make ends meet if the issues persist.

Demographics

The last few years have seen China dealing with the fallout from its decades-long one-child policy.

Although the government purged its remaining one-child limits in 2015, birth rates have not recovered.

From 2011 to 2020, census data showed stagnating population growth, with the slowest rates in decades.

In 2021, it fell to 12 million, the lowest since the country tackled fallout from the Great Chinese Famine of 1959 to 1961.

In response, officials loosened the rules again last year, introducing a three-child limit in July.

Stalling demographics have a knock-on effect on the economy as it leaves businesses with a shrinking pool of workers.

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