China’s central bank is concerned that a crypto-based economy will engender widespread financial instability as the government still struggles to find ways of regulating cryptocurrency.
China’s central bankers are still worried. The country is in a tough spot with the economy slowing down and their currency losing value. Read more in detail here: history of central banking.
Passengers enter Xian North Railway Station in China after showing their Covid-19 testing results.
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Following a turbulent 2021 highlighted by a near-disaster in the housing market and a broadening crackdown on formerly fast-growing areas such as information technology, China’s economy showed some signs of life on Monday. According to new data, fourth-quarter growth was 4% year over year, down from 4.9 percent in the third quarter but still far above the 3.3 percent average expectation among analysts surveyed by FactSet.
Still, policymakers don’t seem to think there’s much to be happy about: The People’s Bank of China also lowered two of its major policy rates by 0.1 percentage point on Monday.
The positive figures, especially for October and November, should not come as a surprise. Despite the fact that China’s economy continued to suffer in the fourth quarter, it benefitted from the absence of two major issues from the previous quarter: the July Delta variant epidemic and late summer electricity shortages. Manufacturing investment was underpinned by resilient exports, and the gradual relaxation of monetary policy since July looks to have helped stabilize poor infrastructure investment.
However, the single-month December data, which was presented with the gross domestic product, was mostly negative, especially for consumers and the crucial housing industry. Retail sales increased by just 1.7 percent year over year, the slowest pace in more than a year. With many Covid-19 outbreaks still ongoing in China as of mid-January, including those associated to the hyper-contagious Omicron strain, the outlook for January and February is gloomy as well.
More concerning, following a notable increase in November, mortgage lending seems to have slowed in December, according to Goldman Sachs: growth in seasonally adjusted medium- and long-term loans to consumers dropped to 9.5 percent from 14.3 percent month on month annualized. Housing sales have also slowed. Without more solid indicators of a real estate bottom, it’s tough to envisage a floor for total Chinese growth. Infrastructure investment is still failing to accelerate, and consumers are hunkering down.
Even with today’s modest policy rate reduction, monetary easing has been cautious in comparison to previous cycles, and many market rates remain high. To avoid a deeper decline in the first half of 2022, further assistance will be required.
To combat the fast-spreading Omicron version, China is implementing a tight set of Covid-19 guidelines during the Winter Olympics. The Wall Street Journal outlines how some of these limitations would operate, from a “closed-loop” system to a prohibition on screaming, and why, despite all attempts, an epidemic might still wreck contests. Fabrizio Bensch/Reuters/Fabrizio Bensch/Reuters/Fabrizio Bensch/
Nathaniel Taplin can be reached at [email protected].
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