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Chinese growth slowdown ‘may fuel social unrest’

XI JINPING General Secretary of the Chinese Communist Party on 11 January 2022. Photo:Li Xueren/Xinhua.

With Chinese growth forecast to underperform Asia for the first time in 30 years, analysts have told GlobalMarkets that put the government under pressure

The forecast slowdown in the Chinese economy has led to fears that the world’s largest country by population will face an economic and social crisis, analysts have told GlobalMarkets.

The World Bank tips output to expand 2.8% in 2022, lagging Asia for the first time in more than 30 years. In its latest World Economic Outlook, the IMF forecast a growth rate of 3.2% this year and 4.4% in 2023. It makes official state projections of 5.5% look deluded.

Other projections are worse. Chen Zhiwu, a professor in Chinese finance and economy at the University of Hong Kong, reckons the economy is “already shrinking in dollar terms due to depreciation of the renminbi”.

Alicia Garcia-Herrero, chief Asia economist at Natixis, said China would be “in negative growth next year in absolute terms, which will increase social unrest”.

Experts are sharply divided over the cause of China’s first real crisis in decades. To Andy Rothman, head of China research at Matthews Asia, the main threat to economic stability stems from president Xi Jinping’s controversial zero-Covid policy. “Families and firms are worried about more lockdowns and that’s leading them to cut back spending and hiring.”


On Thursday, Shanghai tightened Covid-19 restrictions after 47 infections were reported in a day, the most since July. It comes at a sensitive time for the Communist Party, which is convening in Beijing to usher in Xi’s third term in office. Two people were arrested in the capital after unfurling protest banners, proof of rising discontent about draconian pandemic controls.

Anne Stevenson-Yang, co-founder of J Capital Research, pointed to real estate, which makes up 30% of output and is now on its knees. Housing prices fell in September in 46 of the 50 cities tracked by consultancy Shanghai E-House.

“Property is the problem,” she says. “It’s the foundation of everything: investment into it, the production of glass, steel and cement, the jobs lost. When people see ghost towns, they are even less likely to buy. It’s a vicious circle.”

Worse is ahead. Experts agree Covid-19 case rates are underreported and likely to spike in winter. That will make any attempt to open borders, let alone convince a fearful population the pandemic is over, even harder.

Looking ahead, one issue is whether an increasingly cash-strapped China — proof of which is offered by a rising reticence to fund projects along the once-trumpeted Belt and Road Initiative — has the wherewithal to tackle its mounting crisis.

Chen at HKU said that banks and local government financing vehicles [LGFVs, used to fund local infrastructure projects] were excessively in debt. “All the talk about quality of growth not quantity is just talk. Pretty much every trick China’s officials are trying — none of them work any longer.”

An even bigger threat comes from the fact some 30% of China’s local governments are reckoned insolvent.