March 17, 2022

China’s Economy at a Glance – March 2022

COVID and energy prices present sizeable risk to China’s ambitious growth target.


  • At the National People’s Congress at the start of March, Chinese authorities unveiled a growth target of ‘around 5.5%’ for 2022. Although this would represent a comparatively weak rate of growth (when compared with pre-2020 rates), this appears to be highly ambitious in the current environment. China’s growth momentum was weak heading into the new year, reflecting subdued growth in domestic consumption, limited additional support from global trade and slowing activity in the property sector – while COVID-19 remains a risk – due in part to the relatively low efficacy of domestic vaccines against the Omicron variant. This is highlighted by lockdowns in Shenzhen and Jilin along with a partial lockdown in Shanghai at the time of writing. Reflecting the impact of global energy prices as a result of the Russia-Ukraine conflict, we have lowered our forecast for China’s growth in 2022 to 5.0% (previously 5.1%), while we expect a pickup in 2023 to 5.5%.
  • Growth in China’s industrial output surprised on the upside in January-February – increasing by 7.5% yoy (compared with an increase of 4.3% yoy in December 2021). That said, this increase may remain influenced by lingering base effects. The seasonally adjusted month-on-month growth in industrial production was broadly similar to the trend across the last three months of 2021 – which suggests that relatively strong year-on-year growth may not represent a sustained acceleration in underlying activity.
  • China’s trade surplus retreated in January-February, from record highs recorded in December, reflecting the seasonal easing in global demand post-Christmas and the impact of the Chinese new year holidays. The surplus averaged US$58.0 billion a month – a level that is quite strong on a historical basis – down from US$94.5 billion previously. This decline was driven by a sharp pullback in exports, with the fall in imports across the period comparatively modest.
  • There was a notable pickup in China’s retail sales growth in January-February – with nominal sales increasing by 6.7% yoy (up from 1.7% yoy in December 2021). Retail price inflation eased a little over this period, meaning that there was a slightly larger recovery in real retail sales – up by 5.0% yoy (compared with a decrease of 0.5% yoy in December). As with the uptick in industrial production, the strength of the increase in retail sales could reflect some lingering base effects – with the increase in seasonally adjusted month-on-month retail sales broadly in line with the trend evident across late 2021.
  • The People’s Bank of China (PBoC) followed up December’s modest rate cut with another in January – this time by 10 basis points to 3.7% (for the Loan Prime Rate). Given the weak momentum in China’s domestic economy – and the risks around COVID-19 lockdowns in major economic centres – another 10 basis point cut had been widely anticipated this month, however the PBoC kept its Medium Term Lending Facility rate (which the Loan Prime Rate is based on) unchanged in March.
  • Meeting the government’s growth target in 2022 will be a significant challenge, and would likely require additional stimulus. At the end of the National People’s Congress, Premier Li confirmed tax cuts and tax rebates that will total around RMB 2.5 trillion this year. In addition, Beijing will increase direct financial support for local governments – which will likely be necessary for localised fiscal spending.

For further details, please see China’s economy at a glance (March 2022)