![]() While China has the macroeconomic space to counter the growth slowdown, the dilemma facing decision-makers is how to make the policy stimulus effective, as long as mobility restrictions persist. The government has stepped up macroeconomic policy easing with large public spending, tax rebates, policy rate cuts, and a more dovish stance on the property sector. In the short term, China faces the dual challenge of balancing COVID-19 mitigation with supporting economic growth.On the upside, if the pandemic is brought under control and domestic restrictions are fully lifted, full year growth could be higher than currently projected, thanks to the recently announced additional stimulus measures. China’s economy is also vulnerable to risks related to the global outlook. As highlighted in the special topic of this edition of the China Economic Update, risks could also stem from persistent stress in the real estate sector with wider economy-wide consequences. The reemergence of new, highly transmittable variants of COVID-19 could lead to more prolonged economic disruptions. Risks to China’s growth are unevenly balanced and downside risks prevail.Growth momentum is expected to rebound in the second half of 2022, helped by aggressive policy stimulus to mitigate the economic downturn. This downward revision largely reflects the economic damage caused by Omicron outbreaks and the prolonged lockdowns in parts of China from March to May. We project real GDP growth to slow sharply to 4.3 percent in 2022 – 0.8 percentage points lower than projected in the December China Economic Update. After a strong start in early 2022, the largest COVID-19 wave in two years has disrupted China’s growth normalization. China’s economy is projected to slow in 2022.In the case of Germany, the service sector generates the largest share of gross domestic product.Key Messages: China Economic Update – June 2022 For instance, the financial sector was the largest contributor to the United States economy. In the case of a successful transformation, China's economy would become more similar to those of developed nations. Furthermore, a society that was older and had a higher share of middle-class population had different requirements to the economy. Although incomes in China had not stagnated, policymakers attempted to preempt “getting stuck” by steering the economy towards high-quality growth and consumption-focus. The fear of the middle-income trap and changing demographics were the main reasons for Beijing's emphasis on economic transformation. In early 2018, the Chinese government proclaimed that the country's economy had reached a new development stage where consumption and services replaced investment and manufacturing as the main driver of economic growth. For instance, China was the biggest steel exporter, the leading merchandise exporter, and exported more than a third of global household goods. The economic structure in China created a huge industrial sector. Instead, the main economic driver is consumption. In comparison to that, in most developed economies, investments make up only 20 percent of the economic output. By the end of the 2010s, investments fueled more than 40 percent of China's GDP and exports were responsible for almost another 20 percent. Typically, emerging economies rely mainly on investments and exports for growing their economy and China was no exception. A country's gross domestic product (GDP) consists of three parts: Consumption, investments, and net exports. Since China is the second-largest economy in the world, the industrial sector’s output alone exceeded the entire economy of Germany.Ĭhina’s export and investment-driven economyĬhina economic development of the early 2000s was mainly driven by investments and exports. It was by far the largest contributor, followed by the wholesale and retail industry that was responsible for 9.7 percent and the financial sector that produced 8.0 percent of the country's economic output. In 2021, the industrial sector generated almost 32.6 percent of China's GDP.
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