China’s National Bureau of Statistics (NBS) released GDP data on Monday, showing that the world’s second-largest economy grew by 8.1 percent in 2021, the biggest rise in a decade and higher than the market’s forecast of 8.0 percent. While China’s economy is off to a great start this year, a spike in the omicron cases dims the future outlook for the country as several Chinese cities, including the capital city, Beijing, have been placed on high covid-19 alert
China was one of the few large economies to recover quickly from the 2020 pandemic, growing by 2.3% in 2020, outpacing countries like the USA, UK and India. However, China’s economic outlook for 2022 is now bleak, owing to repeated cases of the covid-19 virus, decreased household consumption, low property investment, a drop in retail sales and the ongoing suspension of domestic and international flights. This poses a significant danger to economic activity as many local governments have already warned residents not to leave town during this period.
In addition, the longterm growth concerns for China include a declining demographic profile, with birth rates falling 12% year on year to 10.6 million, the lowest figure since the Chinese Communist Party gained power in 1949. For the first time, the number of people aged 60 and under has decreased, with the population increasing by 480,000 in 2021 to 1.4126 billion. Concern with the low birth rate has prompted the Chinese government to encourage families to have up to three children, after recognising that its decades-long one-child policy has contributed to a rapidly ageing population and shrinking workforce, both of which threaten the country’s future economic performance and social stability.
How the GDP Data Performed
- China’s booming shipments of electronics, manufactured products, high-tech power machinery, crude oil and rending of services to coronavirus-hit economies overseas were a key boost to growth in 2021, with exportsaccounting for more than a quarter of GDP growth as China continues to maintain its global trade dominance.
- China’s Property investment index which measures house prices, sales, construction and investment dropped 13.9% in December 2021 from a year earlier, according to data obtained from the American financial information service “Reuters”. This decline in property investment was triggered by the Chinese government’s crackdown on excessive real estate borrowing; this has triggered payment defaults by giants of the Chinese real estate industry such as the developers Evergrande and Shimao Group. This issue has raised global concerns about the Chinese property industry’s health, which accounts for 25% of the economy.
- Retail sales in December fell short of expectations, gaining only 1.7 percent year over year, the worst pace since August 2020, weighing on China’s GDP performance in 2021. The country’s stringent steps to eliminate all coronavirus cases, including recent lockdowns in major cities, contributed to the lingering weaknesses in consumption.
- Inflation, which measures changes in the price of goods and services purchased by households, climbed less than projected in December 2021, reaching 1.5 percent, far less than America’s 7%. Food prices, pig costs, vegetables, hotels and lodging all contributed to the decrease in inflation figures.
The poor data led the People Bank of China (PBOC) – also known as the central bank into action on Monday. The PBOC unexpectedly cut interest rates on its one-year medium-term lending facility (MLF) to 2.85% from 2.95%, a move that will make borrowing cheaper for companies and encourage households to get out and spend. However, the investment bank “Goldman Sachs,” believes that the rising cases of omicron would continue to be a drag on the Chinese economy, and as a result, the bank has lowered its growth forecast for China to 4.3 percent in 2022 from 4.8 percent previously.
Implications for Nigeria
China is a key trading partner and lender to Nigeria. The consequences of China’s slowing growth could have the following effects on Nigeria:
- Electronics, manufactured goods, high-tech powered machinery, textiles, footwear, fertilizer, plastics, and other things are widely imported from China by Nigeria. As a result, if the Chinese government imposes a long-term embargo on foreign flights to prevent the spread of the new coronavirus, Nigerian importers trying to bring goods from China into the country may face stockouts, artificial scarcity, or a temporary price increase.
- Over the years, the Chinese government has been a cheerful lender to Nigeria. In fact, Nigeria’s debt to China has risen dramatically in the last decade as the government seeks to diversify its debt portfolio by relying on less expensive but problematic Chinese loans. Nigeria’s debt to China was $4.1 billion in September 2021, according to the latest figures from the Debt Management Office. A prolonged economic slowdown in China may cause the Chinese government to prioritize fiscal support for its own economy, making it less likely to extend new loans to developing countries such as Nigeria. The Financial Times last week reported that China is reducing lending to Africa as fears of default grows.
- In December 2021, fuel prices alone contributed 22.5 percent to China’s consumer inflation. The Chinese government has recently indicated that it will release its oil reserves to the world market between January 31st and February 6th to lower oil prices. China’s increased crude oil output could lower crude oil prices on the global market, resulting in less money for Nigeria.
- Finally, China’s ageing population and shrinking workforce are raising concerns about the country’s economic performance and social stability in the future. r Africa is predicted to have the world’s greatest youth population by 2050, with a growth rate of about 50%. A sea change in policy and social attitudes would however be required for China to open its borders to African immigrants.