Opinion: Chinese Provinces’ ‘Two Sessions’ Show What’s in Store for 2022
As of Jan. 23, 30 of the Chinese mainland’s 31 provincial-level governments had convened their local “two sessions” annual meetings.
Information and speeches given at the meetings show that local leaders this year will prioritize steady growth, high-quality development and improving regional links. Fixed-asset investment will be the primary key to stabilizing growth, while stabilizing the consumption of new-energy vehicles (NEVs), smart home appliances, and green building materials will be the keys to stabilizing consumption.
An analysis of the data announced during the local “two sessions” shows that on a weighted basis, their targets for 2022 compared with their targets for 2021 point to: a slowdown in GDP growth of 0.7 percentage points, a marginal increase in fixed-asset investment growth of 0.1 percentage point, a moderation in growth in total retail sales of consumer goods and catering services of 0.3 percentage points, and an increase of 0.5 percentage points in general public budget revenue.
I. Measuring the data of the local “two sessions”
Based on the share of each region in China’s total GDP, total retail sales, fixed-asset investment and fiscal revenue, we have calculated local governments’ overall targets for 2022 and compared them with their targets for 2021.
1) GDP: 29 of the 31 provincial-level regions, accounting for 97% of national GDP, have announced their 2022 growth targets. Our calculations show a weighted average drop of 0.7 percentage points from last year’s targets.
2) Fixed-asset investment: 19 provincial-level governments have announced 2022 targets, with a weighted average increase of 0.1 percentage points from last year’s targets.
3) Total retail sales: 19 provincial-level governments have announced their targets, with a weighted average drop of 0.3 percentage points from last year’s targets.
4) General budget revenue: 23 provincial-level governments have announced their targets, with a weighted average increase of 0.5 percentage points from last year’s targets.
5) CPI: 26 provincial-level governments have announced their CPI targets, which are all the same at 3%, unchanged from last year’s targets.
6) Unemployment: 27 provincial-level governments have announced their targets, which our calculations show give an average rate of 5.5%, unchanged from last year’s national projection.
A few reasons led us to believe that the 2022 national GDP growth target will fall within 5% to 5.5%, rather than around 5%.
The announcements by provincial-level governments indicate that the 2022 overall GDP target may drop from 6% in 2021 to around 5.3%.·
Shanghai’s and Beijing’s economic growth targets for 2022 have been set at 5.5% and 5%, respectively. Historically, these two municipalities are very close to the national target and are therefore reliable indicators.
If China’s economic growth in 2022 is around 5%, the country will see greater employment pressure; this may still be the case even if economic growth reaches 5.5%.
A 1 percentage point increase in GDP growth normally creates about 2 million new urban jobs, Sun Guojun, who sits on the Leading Party Members Group of the State Council Research Office, told a briefing on interpreting the Report on the Work of the Government in 2020. Data from 2016 to 2019 validate this conclusion. From 2020 to 2021, a 1 percentage point increase in GDP growth helped 2.41 million people find employment in urban areas.
Based on this assumption, even an economic growth rate of around 5.5% cannot completely alleviate employment pressure.
The Ministry of Education estimates that there will be 10.76 million fresh college graduates in 2022. If we assume that almost all find employment, and the number of non-new graduate job seekers is the same as 2020, China will see about 13.88 million new entrants into the urban workforce in 2022. If GDP growth reaches 5.5%, every 1 percentage point increase will need to create about 2.52 million new jobs. If economic growth is 5%, the figure will have to rise to 2.78 million.
Some argue that the more rapid aging of the population will partially mitigate employment pressure in 2022. However, our analysis shows the average retirement age is around 55, and the number of people aged between 54 and 57 peaked in 2018 and 2019, which implies that pressure on employment this year will not be relieved by this factor.
II. Local priorities
Among the priorities outlined in the 2022 local “two sessions,” stabilizing growth is the core task, but provincial-level governments also announced they will be looking to areas such as the digital economy, industrial upgrading, and technology innovation to promote high-quality development. The well-developed regions of Beijing, Shanghai and Guangdong are also giving top priority to regional integration.
III. Prioritizing investment and stabilizing consumption
1. Investment: infrastructure construction, urban renewal, and public housing
Most provincial-level governments have set a higher growth target for fixed-asset investment in 2022. Historical data show the consistency between the actual growth in fixed-asset investment and targets. By Jan. 23, 19 provincial-level governments had released their fixed-asset investment targets, with a weighted average target amounting to a 0.1 percentage point increase. Looking at the local “two sessions,” it is clear local governments will focus on fixed-asset investment to stabilize growth in 2022.
We expect they will step up efforts in infrastructure construction, urban renewal, and affordable housing. Many will pay equal attention to traditional construction and what’s known as “new infrastructure” which includes areas such as 5G base stations, the internet, technological improvement and new energy. For example, the provinces of Hebei and Anhui will each build 25,000 new 5G base stations, while Guangxi will launch 1,200 projects for the technological transformation of companies and 30 “new infrastructure” projects to build the industrial internet. Zhejiang has already started a 7-million-kilowatt clean thermal power project and a 1-million-kilowatt new-energy storage project.
In terms of total retail sales, most provincial-level governments have kept their goals at the same level as last year, although some have set slightly higher or lower targets. In general, the overall weighted average target reveals a decline of 0.3 percentage points. However, in 2021, actual growth in total retail sales of most provincial-level regions outperformed their targets, which suggests local governments have tended to set conservative goals since the outbreak of the Covid-19 pandemic.
Based on local consumption targets for 2022, some regions will focus on promoting green consumption, cultural tourism consumption and rural consumption. They are also aiming to make the consumption of NEVs, home appliances, building materials, petroleum products and other commodities greener. For example, regions like Inner Mongolia and Shaanxi have announced clear goals to promote NEV consumption and help more rural areas get access to smart home appliances, green building materials and other eco-friendly products.
3. General public budget
In terms of the general revenue part of fiscal budgets, many provincial-level governments have kept their growth targets unchanged from 2021. In general, the overall weighted average target has increased by 0.5 percentage points.
Guangxi and Shaanxi have lowered their targets. Guangxi is facing greater post-pandemic pressure on fiscal revenue, whose average annual growth rate for 2020 and 2021 has been negative at -0.3%. It lowered its 2022 target by 2 percentage points to 3%. Shaanxi’s post-pandemic two-year average annual growth rate reached 10.1%, higher than the national average. However, the province has also lowered its target by 2 percentage points to 3%, which we believe to be a result of the Covid-19 outbreaks in the province at the end of 2021.
In general, the higher general public budget income targets at the local “two sessions” will provide effective support for steady growth. At the State Council executive meeting on Jan. 10, the central government urged local governments to accelerate the issuance of government bonds and commence projects as soon as possible, which would accelerate infrastructure construction. In view of this, we stand firm on our estimate of 6% for the country’s infrastructure growth in 2022. According to our estimates, infrastructure investment will see rapid growth and reach 10% in the first six months of the year.
Gao Ruidong is managing director and chief macroeconomist of Everbright Securities Co. Ltd.
The article has been edited for length and clarity.
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