With 2022 will be over in a few days, what will the Chinese economy be like as the year ends? The short answer is that, while the economic pattern has been determined, the actual situation may be worse than expected.
Data published by China's National Bureau of Statistics (NBS) on December 27 shows that the total profits of industrial enterprises above designated size nationwide were RMB 7,717.96 billion, a year-on-year decrease of 3.6% (calculated on a comparable basis), an increase of 0.6 percentage points from the decline from January to October. It was the fifth consecutive month of decline in the cumulative measure, and the decline was larger than the previous value. Among them, state-owned holding enterprises realized a total profit of RMB 2,404.97 billion, a year-on-year increase of 0.5%; joint-stock enterprises realized a total profit of RMB 5,641.20 billion, a decrease of 2.8%. Foreign, Hong Kong, Macao, and Taiwan enterprises realized a total profit of RMB 1,837.85 billion, a decrease of 7.8%. Meanwhile, private enterprises realized a total profit of RMB 2,263.69 billion, a decrease of 7.9%.
It can be seen that the more distance an enterprise is away from being state-owned, the worse its profitability of it will be. If the operation of the microeconomic entities is in such a state, the performance of the macroeconomy can be imagined.
Looking at the performance of various industries, from January to November, among the 41 major industrial industries, the total profits of 20 industries increased year-on-year, while that of the other 21 industries see a decrease. During the same period, industrial enterprises above the designated size realized operating income of RMB 123.96 trillion, a year-on-year increase of 6.7%; incurred operating costs of RMB 105.12 trillion, an increase of 8.0%. The operating income profit margin was 6.23%, a year-on-year decrease of 0.66 percentage points. At the end of November, the total assets of industrial enterprises above the designated size were RMB 156.07 trillion, an increase of 8.6% year-on-year. The total liabilities were RMB 88.78 trillion, an increase of 9.0%. The total owner's equity was RMB 67.28 trillion, an increase of 8.0%. The asset-liability ratio was 56.9%, A year-on-year increase of 0.2 percentage points. The figures show that measures of efficiency and asset quality are slipping across the industrial sector.
It is worth noting that the industrial operating conditions for the single month of November have not been announced. This is the fifth consecutive month that the NBS has not published the monthly data. Some officials pointed out that in November, due to factors such as the rebound of the COVID-19 outbreaks and insufficient demand, industrial production slowed down and business pressure increased, though the profit structure continued to improve. Obviously, due to the pandemic, the industrial economic data for November is likely to be "unavailable". Analysts at Reuters said the lackluster industrial data reflected China's economy being hit again in November by restrictions imposed in many cities, including key manufacturing hubs Guangzhou and Zhengzhou, against the backdrop of a housing crisis and a long-term export slowdown. All these may cause more damage than expected. Affected by the spread of the novel coronavirus in multiple places, factory activities and supply chains have been in a turbulent state, leading to further shrinking of the profits of industrial enterprises above the designated size in the period from January to November.
The industry is just one of the windows reflecting China's economy. Viewed from different windows, the economic performance in the last two months of this year was rather poor. For instance, in terms of consumption, in November, the total retail sales of consumer goods were RMB 3,861.5 billion, a year-on-year decrease of 5.9%. Among them, the retail sales of consumer goods other than automobiles were RMB 3,482.8 billion, a decrease of 6.1%. In terms of investment. From January to November, the national fixed asset investment (excluding rural households) was RMB 52004.3 billion, a year-on-year increase of 5.3%. Among them, private investment in fixed assets was RMB 28410.9 billion, a year-on-year increase of only 1.1%. From a month-on-month perspective, fixed asset investment (excluding rural households) fell by 0.87% in November. From the perspective of external demand, in November this year, China's exports in U.S. dollars fell by 8.7% year-on-year. In November, the international environment became more complicated, and with it, the contraction of external demand further emerged. Then within China itself, the outbreaks of COVID-19 rebounded in several larger areas. These "triple pressures", namely the demand contraction, the supply shock, and the weakening expectations were then increased, and their constraints on economic operation became more obvious.
In addition to the above factors, there is another factor that could slow down China's economic growth in 2022. According to the latest bulletin issued by the NBS on December 27, after the final verification of China's GDP data in 2021, the total current price of the country's GDP in 2021 was RMB 114,923.7 billion, an increase of RMB 556.7 billion from the preliminary accounting. If it is calculated at constant prices, there was an increase of 8.4% over the previous year, an increase of 0.3 percentage points over the previous preliminary accounting (8.1%). The final GDP calculation in 2021 would then increase by a rare 0.3 percentage points. Although this may be a statistical technical adjustment, it will have an impact on the economic growth rate in 2022. Due to the increase in the base, the economic growth rate for the whole of 2022 is bound to be dragged down.
Under the influence of many factors, China's economic growth in 2022 may not be as good as expected. Many institutions had previously expected that the country's economic growth rate would be between 3% and 3.5% in 2022. If the above factors are taken into account, the actual growth rate may be lower than this range. On a more positive side, when the bad news is exhausted and the growth base is low, this will absorb all the negative factors, to provide a low base for the Chinese economy in 2023.
Final analysis conclusion:
The Chinese economy in 2022 may be worse than market expectations. After a year of bad news, it will now welcome the year 2023 in which the prospects remain uncertain.
