rapidly and remained below potential since the second half of 2021, as significant CHINA Key conditions and fiscal policy and regulatory tightening, a downturn in the housing market, and fre- challenges quent COVID outbreaks weighed on eco- nomic activities. Table 1 2021 After a swift rebound, China’s economic The surveyed urban unemployment rate Population, million 1412.4 recovery lost momentum in the second returned to 2019 levels and about 12.7 mil- GDP, current US$ billion 17755.1 half of last year. Domestic demand has lion new jobs were created in 2021, exceed- GDP per capita, current US$ 12571.2 slowed, and the global economic environ- ing China’s annual target of 11 million new a 0.1 International poverty rate ($1.9) ment has worsened significantly with the urban jobs. After a marked slowdown in a 1.7 war in Ukraine. In addition, COVID in- 2020, disposable household income grew Lower middle-income poverty rate ($3.2) a 15.8 cursions have become more frequent and strongly in 2021 by 8.1 percent y/y with Upper middle-income poverty rate ($5.5) Gini index a 38.2 widespread. China is currently experienc- faster growth among rural households. School enrollment, primary (% gross) b 103.2 ing the largest COVID wave since the With rising household income, per capita b 76.9 end of the national lockdown in March consumption expenditure also accelerated Life expectancy at birth, years 2020 with more than 50,000 cases since by 12.6 percent y/y. As overall conditions Total GHG Emissions (mtCO2e) 12892.3 the start of 2022. improved, the poverty rate resumed its Source: WDI, Macro Poverty Outlook, and official data. Over the medium term, China’s potential pre-pandemic declining trend, and is ex- a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). growth is decelerating due to structural pected to fall below 12.3 percent in 2021 factors. The economy has embarked on a when considering the upper-middle in- structural slowdown reflecting adverse de- come countries’ poverty line of $5.50/day mographics, tepid productivity growth per person (2011 PPP). and rising constraints to a growth model Although activity data for the first two With rising external headwinds and do- that relies excessively on investment. To months point to a robust start in 2022, mestic challenges, economic growth is avert a sharper slowdown China needs to COVID outbreaks, a challenging external projected to slow to 5.0 percent y/y in revive productivity growth and rebalance environment, housing market downturn 2022. By 2022, 10.8 percent of the popu- the economy along multiple dimensions: and a still-sluggish consumption recovery from exports and investment to greater re- hint at further downside pressure on near- lation in China are expected to fall below liance on domestic consumption, from term economic activity. Faced with grow- the $5.50/day per person poverty line state-led to more market-driven growth, ing downside pressure on growth, policy- (2011 PPP). The near-term outlook is and from high to low-carbon growth. makers have shifted to a more accom- highly uncertain with risks tilted to the modative monetary and fiscal policy downside amid frequent COVID out- stance. While the government set the 2022 quota for special local government bond breaks, an ongoing housing market cor- Recent developments issuance to finance infrastructure projects rection, and the war in Ukraine. at RMB 3.65 trillion, the actual quota might Full-year GDP growth in 2021 accelerated be substantially higher at about RMB 4.7 to 8.1 percent y/y. After a strong rebound trillion due to the carryover of last year’s in the first half of 2021, growth cooled bond proceeds. In addition, the State FIGURE 1 China / Real GDP growth and contributions to real FIGURE 2 China / Actual and projected poverty rates and GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (millions constant LCU) 9 30 90000 8 80000 7 25 70000 6 20 60000 5 4 50000 15 3 40000 2 10 30000 1 20000 0 5 10000 -1 2013 2015 2017 2019 2021e 2023f 0 0 Private consumption Government consumption 2016 2018 2020 2022 Gross capital formation Net Exports International poverty rate Lower middle-income pov. rate Statistical Discrepancy GDP Upper middle-income pov. rate Real GDP pc Source: China’s National Bureau of Statistics; World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 1 Apr 22 Council extended some of the tax and fee Private investment growth is expected to consumer confidence and trigger larger reduction policies for SMEs to the end of weaken as manufacturing investment and more prolonged economic disrup- 2023. The PBOC has implemented multiple slows owing to weaker external demand, tions. Meanwhile, more severe financial policy easing measures since last Decem- and real estate investment remains sub- stress among property developers could ber including cuts in various interest rates dued with the authorities maintaining create negative spillovers to upstream and regulators have finetuned housing their focus on reining in financial risks in sectors and weigh on investment and con- policies in recent months to support the re- the property sector. The growth projection sumption. On the external side, risks al estate sector. assumes substantial loosening of fiscal pol- could transmit through a stronger than icy to stem these headwinds which are ex- expected slowdown in global demand pected to lead to accelerated infrastructure and a longer lasting shock to commodity investment. Given the projected economic prices. In a downside scenario with a Outlook growth for 2022, the poverty rate mea- more dominant COVID shock growth sured at $5.50/day per person is expected could slow to 4.0 percent in 2022. While On the back of increasing headwinds, Chi- to fall to 10.8 percent, with more than a China has policy space to act, using ex- na’s GDP growth is expected to slow to third of the poor residing in urban areas. cessive stimulus to boost investment 5.0 percent in 2022. The recent and wide- The decline represents 22 million fewer could further aggravate domestic imbal- spread Omicron wave will further delay poor people than in 2021. ances and delay the shift towards high the recovery in private consumptions and The outlook is highly uncertain with risks quality growth. In light of these consider- service-led activities. On the external side, tilted to the downside. The key downside ations, should China face further negative China is expected to face a decline in its risk are more severe and protracted shocks, policy makers may want to set- terms of trade as well as a decline in export COVID outbreaks, which could impair tle for lower growth and maintain policy demand, with the growth contribution of production and domestic supply chains buffers rather than jeopardize hard-won net exports likely turning negative in 2022. with knock on effects on investor and rebalancing gains. TABLE 2 China / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 6.0 2.2 8.1 5.0 5.2 5.1 Private Consumption 6.5 -1.8 12.2 5.6 6.6 6.5 Government Consumption 6.0 3.2 4.3 7.1 4.1 4.4 Gross Fixed Capital Investment 5.3 3.2 2.7 4.2 5.1 4.8 Exports, Goods and Services 2.2 1.4 17.5 3.8 3.1 3.0 Imports, Goods and Services -1.7 -1.7 9.9 5.8 4.3 4.3 Real GDP growth, at constant factor prices 6.0 2.2 8.1 5.0 5.2 5.1 Agriculture 3.1 3.1 7.1 3.2 3.1 3.1 Industry 4.9 2.5 8.2 4.8 4.6 4.5 Services 7.2 1.9 8.2 5.4 6.0 5.8 Inflation (Consumer Price Index) 2.9 2.5 0.9 2.2 2.0 1.9 Current Account Balance (% of GDP) 0.7 1.9 1.8 1.3 1.2 1.1 Net Foreign Direct Investment (% of GDP) 0.4 0.7 1.2 0.9 0.9 0.8 a Fiscal Balance (% of GDP) -4.6 -8.6 -4.4 -7.1 -5.5 -4.3 Debt (% of GDP) 38.5 45.4 45.1 49.3 51.4 52.3 Primary Balance (% of GDP) -3.6 -7.4 -3.2 -5.8 -4.1 -3.0 b,c International poverty rate ($1.9 in 2011 PPP) 0.1 0.1 0.1 0.0 0.0 0.0 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 1.7 1.5 1.0 0.8 0.6 0.5 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 15.8 15.0 12.3 10.8 9.3 7.9 GHG emissions growth (mtCO2e) 2.5 1.5 5.8 2.3 1.7 1.2 Energy related GHG emissions (% of total) 81.8 81.9 82.0 81.8 81.7 81.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ The adjusted fiscal balance adds up the public finance budget, the government fund budget, the state capital management fund budget and the social security fund budget. b/ Last grouped data available to calculate poverty is for 2019 provided by NBS.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2021 to 2024. c/ Projections based on GDP growth estimates, using a neutral distribution assumption with pass through 0.85 to per capita household consumption. MPO 2 Apr 22