• Consumption Trends – Retail sales growth continues to weaken. Ongoing COVID outbreaks will likely limit consumer spending and impede any rebound in consumer services through the Winter and during the Chinese New Year holidays. Slow job creation, a property market downturn, and rising consumer inflation are headwinds for household consumption in the near-term.

• Trade Trends – China’s export growth remains strong. Given the enduring impact of the pandemic, external demand is expected to remain solid for China in 2022, but the rate of export growth will likely drop significantly due to the high base rate of growth in 2021. China’s enlarged current account surplus has seen the RMB appreciate quickly since October. The PBOC is currently acting to slow the pace of any further appreciation.

Implications for Business

In December, the expected monetary easing finally arrived. Strong expansion in fiscal expenditure is promised for 2022. But members shouldn’t get too excited; another credit fueled upcycle is not coming. The overarching policy objective of “ensuring economic stability” signals that pro-growth measures will focus on cushioning the economy to prevent over-slowing, not on jacking up growth to pre-COVID levels. Current market consensus for 2022 growth is around 5 percent, a large step down from the 6 percent of 2019. And, given the scope of the current slowdown, even stronger-than-expected stimulus means that eventual bottoming won’t likely happen until 2H 2022. Policy measures will likely target both infrastructure and manufacturing investment. Policies to support “Common Prosperity”, although critical for China’s long-term structural rebalancing, are unlikely to boost consumer spending in the short-term. We do not expect to see strong policy actions targeting short-term consumption growth in 2022. Retail sales are thus likely to remain weak in the coming year.