China's Economy Beats Expectations in 2021

China’s economy expanded by 4.0% on a year-on-year basis in the fourth quarter of 2021, a slightly better performance than had been expected. Nevertheless, this was the lowest rate of economic growth in China since the second quarter of 2020.

Economic growth in the world’s second-largest economy was held back in the fourth quarter of last year by Covid-19 outbreaks in some of China’s main economic centers and a sharp downturn for the country’s real estate sector. On the positive side, export growth in China remained strong, bolstered by rising demand in key export markets in Asia and further abroad.

Looking ahead, the Chinese economy is expected to continue to face significant headwinds in 2022. First, the government’s insistence on following a “Zero-Covid” policy will result in more disruptions for the Chinese economy. Second, real estate and other sectors of the Chinese economy are facing serious debt problems, some of which could become a full-blown crisis. Finally, export growth is likely to slow in 2022 as global demand falls back from the highs reached in 2021.

A Longer-Term Look at the Chinese Economy

Rising wealth levels will continue to bolster domestic demand in China. However, geopolitical tensions and a looming demographic crisis will prove to be significant challenges for China over the longer-term.

 Summary

China’s economy has proven to be highly resilient despite the disruptions of the past two years. Even as growth slows in the years ahead, China’s global economic influence will continue to grow.