China's economic outlook: What to watch in 2022

Visitors view electric cars during China (Tianjin) Auto Show 2021 in north China's Tianjin, Sept. 29, 2021. [Xinhua/Li Ran]

BEIJING -- For China, the year 2021 has been a milestone and a fresh start. Upon completing the building of a moderately prosperous society in all respects, the world's second-largest economy embarked on a new journey to build itself into a modern socialist country.

It has also been a bumpy ride. Faced with unexpected challenges and uncertainties, the country secured a stable recovery and progressed in high-quality development.

Now with the new year dawning, will China sustain its post-pandemic rebound into 2022? What are the economic priorities this year? How will China navigate its journey toward socialist modernization? Here are some key trends to watch.

PRIORITIZING STABILITY

Stability will be a priority for the Chinese economy in 2022. At the tone-setting Central Economic Work Conference last month, Chinese leaders stressed that economic work in 2022 should prioritize stability while pursuing progress.

While cautioning that China's economic development is facing pressure from demand contraction, supply shocks and weakening expectations, the meeting also highlighted the country's strong economic resilience and unchanged fundamentals underpinning long-term growth.

Han Wenxiu, a senior official with the Central Committee for Financial and Economic Affairs, said despite increasing difficulties, China has ample favorable conditions for its economic growth, with strong resilience, a complete industrial chain, rich human resources, convenient infrastructure and a huge domestic market.

The macro policies in 2022 will be sound and effective, which means maintaining their continuity, stability and sustainability while improving their precision and operability, said Han.

According to the World Bank's prediction, China's real GDP growth will reach 8 percent in 2021 and moderate mildly to a still-solid 5.1 percent in 2022, and that its "momentum is expected to pick up, aided by a more supportive fiscal stance."

MARKET VITALITY

"If comparing social and economic development to a towering tree, then supporting market entities is to improve the soil underneath," said Gao Peiyong, vice president of the Chinese Academy of Social Sciences.

In 2022, while paying closer attention to market entities' performance and needs, Chinese market regulators have pledged to improve policy accuracy and effectiveness to help market entities cope with pressure and better support their sound development.

Han Dongcheng, a young entrepreneur in east China's Anhui Province, said his company saved millions of yuan in rent last year thanks to local government policies to alleviate the corporate burden.

"Besides lower rent, we've also enjoyed tax reduction for high-tech companies, therefore we can put more funds into research and development," said Han, who started a company on aerial imaging technology with his schoolmate in 2016.

The newly added tax and fee cuts were expected to exceed 1 trillion yuan (about 156.88 billion U.S. dollars) last year, official data showed. The tax and fee cut measures that expired by 2021 will be extended this year to support small businesses.

The country will also step up efforts to create a fair, transparent and stable institutional environment for all market entities, Zhang Gong, head of the State Administration for Market Regulation, told Xinhua.

DECARBONIZATION PUSH

The year 2021 is regarded as "Year One" for China to move toward carbon neutrality, which witnessed the release of a top-level design document for peaking carbon emissions and achieving carbon neutrality and an action plan for peaking carbon emissions before 2030.

Under the guidance, new institutional innovations and policy tools to support the decarbonization push, including a national carbon market that started trading last July, are expected to play a more prominent role in 2022.

A research report by Morgan Stanley last year said that it expected stronger policy support for green investments in China from 2022 -- such as renewables, smart grid, power storage equipment and manufacturing equipment upgrades.

The green push is expected to inject new impetus into the Chinese economy. The investment bank forecast a recovery in infrastructure driven by green investment, saying it expects infrastructure investment growth to rebound to 4 percent in 2022.

The wider use of carbon pricing, along with power sector reforms and the development of a wider set of green financing instruments, would help accelerate China's low carbon transition while encouraging green innovation, thereby boosting medium-term growth prospects, the World Bank has pointed out.

STEADFAST IN OPENING-UP

On the first day of 2022, the Regional Comprehensive Economic Partnership agreement, the world's largest free trade deal to date, came into force.

The landmark event has not only sent a firm signal to support free trade and uphold the multilateral trading system but also marked a strong start for China in the new year in pursuing wider opening-up.

To further open up the economy, in late December, China shortened two negative lists for foreign investment for the fifth straight year to ease their market access.

China has also vowed to expand high-quality and institutional opening-up, grant foreign-funded enterprises national treatment, attract more investment from multinational companies and facilitate the early implementation of major foreign-invested projects in 2022, according to the Central Economic Work Conference.

Bucking a sharp drop in global cross-border investment, foreign direct investment into the Chinese mainland, in actual use, surged 15.9 percent year on year to 157.2 billion U.S. dollars in the first 11 months of last year, outnumbering the amount for the whole year of 2020.