China: Top five questions for 2022 – And financial implications

In this paper, we give a short overview of the key questions in China in 2022 and what we expect.
Overall, we look for the Chinese economy to recover moderately, crackdowns to ease but not end and that China’s zero-tolerance policy on Covid is here to stay for most of 2022.
We expect limited impact on the economic agenda of the 20th CPC National Congress, which is mostly a political event. We look for tensions around Taiwan to remain high but see a small probability of a military confrontation anytime soon.
Based on this, we look for Chinese stock markets to move higher in 2022 and for the CNY to weaken moderately.

Allan von Mehren Danske Bank A/S

1: Will China’s economy recover?

Short answer: Yes – we lift our growth forecast from 4.5% to 5.0% in 2022

As we argued in Research China – Stimulus picks up ahead of CPC Congress in ’22, 21 December 2021, a key policy goal this year is stability. Following a year of economic downturn and property crisis, Chinese polices aims at stabilisation and is already taking measures to steer the economy back towards the middle of the road. Given the latest improvement in data which came a quarter earlier than we expected, we revise up our GDP forecast for 2022 to 5% from 4.5%. Infrastructure projects are pushed forward and steps have been taken to stabilize the property markets via easing of mortgage lending, increasing bank loans to developers and loosening the ‘three red lines’ regulation that puts caps on developers’ debt levels. The latter will facilitate that troubled developers can raise liquidity by selling projects to more healthy developers. While the economy is set to recover, it is likely to be a moderate one. Headwinds continue from Covid outbreaks, which will likely become more frequent due to Omicron. And Chinese policy makers still very much focus on long term sustainability and financial risks. So stimulus will be measured.

2: Will the crackdowns continue in 2022?

Short answer: Yes, but probably less so than in 2021

2021 was characterized by a blitz of crackdowns and new regulations: big tech internet companies received significant fines for abuse of market power, fin-tech faced much tighter regulation, a 3-hour ruls on kids’ gaming was implemented, private tutoring of school kids was banned and ride hailing company Didi faced suspension of apps for listing in the US without proper guarantee of data security. The crackdowns led to a big hit to foreign investor sentiment and in combination with the economic slowdown was a key reason for China’s significant underperformance in the offshore Hong Kong stock market.

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Allan von Mehren

Danske Bank A/S

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