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Cranes are lined in front of the skyline of the Central Business District, in Beijing, on Oct. 18, 2021.THOMAS PETER/Reuters

China’s economy shook but never truly stumbled in 2021, despite being buffeted by the pandemic and global supply chain issues, as well as domestic power shortages and the threat of a property crisis sparked by a hyper-leveraged developer.

The world’s second-largest economy posted decent performance toward the end of the year and is expected to average out at about 8-per-cent real GDP growth for 2021, above official targets, before slowing to just over 5 per cent this year.

“So long as the COVID situation does not get worse, the Chinese economy should be able to pick up. And if things go well China can still grow 5 to 7 per cent,” said Zhu Tian, a professor of economics at the Shanghai-based China Europe International Business School. “Given the relatively more pro-active macro policies in China, I think the economy can still grow quite strongly in the next year.”

China’s economy has always been state-led, but the hand of the Communist Party was particularly strong in 2021, with officials intervening in areas where they had previously been relatively hands-off, particularly the tech sector. A clampdown on overseas listings and aggressive antitrust action saw hundreds of billions of dollars wiped off the value of some of China’s biggest companies, including Alibaba and Tencent.

A similar crackdown on private tutoring almost wiped out many education companies, with market leader New Oriental Education & Technology Group now trading at 10 per cent of its value at the start of 2021 and frantically pivoting to alternative courses for adults.

Mass layoffs in both the tech and education sectors piled on the pressure in China’s job market.

But the greatest concerns emerged in the latter half of the year, when it seemed the country’s property sector, long regarded as a bubble, was on the verge of collapsing. New regulations limiting how much debt developers could hold (after decades of hyper-leveraging) pushed several to the edge, with Guangzhou-based Evergrande becoming the poster boy for what some feared could be China’s “Lehman moment.” A crisis point never arrived, however, and the government has been gradually aiding the sector ever since, pumping in money and reassuring investors both at home and abroad.

The majority of Chinese household wealth is in property, and a severe correction, let alone collapse, would cause widespread misery but also potential social unrest, as evidenced by the protests outside Evergrande’s offices in Shenzhen and elsewhere when it seemed the developer might default.

At the annual Central Economic Work Conference in early December, officials said China’s economy was facing “triple pressure” from shrinking demand, supply shocks and weakening expectations. In particular, Chinese consumers need to be spending more, as stimulus programs in the United States and elsewhere that had boosted exports from China begin to expire, dragging down growth.

“A key factor is the sharp decline in both consumption and investment,” Prof. Zhu said, with attempts to boost domestic spending stymied by coronavirus outbreaks. China has some of the world’s toughest zero-COVID policies and is starting the new year amid the worst outbreak in months, with more than 13 million people under lockdown in the city of Xi’an alone. This is still due primarily to the Delta variant, with the more infectious Omicron variant not yet widely spread in China.

“If China maintains its zero-COVID policy, services could face extreme pressure on both the supply and demand side in Q1, with businesses closed down and customers confined at home even due to a single case in their areas,” Derek Scissors, the chief economist at China Beige Book, said in a report. “Omicron’s impact on services is the single biggest threat to the bullish economic case for next year.”

At the December conference, which was led by President Xi Jinping, officials resolved that “economic work next year must have ‘stability’ as its watchword.”

“All stakeholders should actively introduce policies that are conducive to economic stability, and policy efforts should be carried out appropriately,” they said.

This is not just for the sake of the economy: The end of 2022 will see the 20th Communist Party Congress, at which Mr. Xi is expected to begin an unprecedented third term as leader. While there is little doubt he will do so, the time between now and then is a vulnerable one for the Chinese President, and a major economic shock could empower his rivals to take him down a peg.

That means no more sweeping crackdowns or attempts to reinvent entire sectors of the economy – at least not this year. Mr. Xi has been touting his “common prosperity” doctrine and grand plans to tackle economic inequality, but most analysts expect this to remain a buzzword until he is secure in a third term.

“Implementing a great economic rebalancing in China would require major structural shifts that Xi cannot afford over the next 12 months,” Jacob Gunter, a senior analyst at the Berlin-based Mercator Institute for China Studies, said in a report. “Instead, redistribution through dual circulation and common prosperity are likely to be advanced only at a surface level next year. The important question is what Xi plans to do with these concepts assuming he ascends to even greater authority at the 2022 party congress.”

For the year to come, any government interventions will be focused on stability above all else. As 2021 drew to a close, China’s central bank said it would use a variety of tools to maintain liquidity and ensure stable credit growth, while Commerce Minister Wang Wentao told state media his department will “do everything possible to stabilize the momentum of the consumption recovery and also stabilize foreign trade and foreign investment.”

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