The Banking Executive Magazine - April 2022 Issue

China’s Growth China announced a GDP growth tar- get for 2022 of about 5.5%, the low- est target since 1991. In 2013, World Bank economists and the Chinese State Council projected that China’s annual growth rate would decline to 5% by 2030. This may still be an overestimate, given that growth rates during 2010-16 have been found to be inflated by 1.8 percentage points and that average growth in OECD economies is around 3%. Back then, economists and policy- makers also accurately predicted the main challenges to long-run growth in China, including increasing in- equality, corruption, an aging popu- lation, inefficiency in large and often state-owned firms, and pollution. But no one could have foreseen the ad- ditional significant economic uncer- tainty stemming from the COVID-19 pandemic and now Russian-Ukraine conflict. The pandemic has severely disrupted supply chains and pushed up prices everywhere. China is particularly worried about rising food prices, be- cause the country is a net importer of food, with the bill totaling $133 bil- lion in 2019. Supply problems and bad weather caused the price of veg- etables in Chinese cities to increase by 30.6% year on year in November 2021. The price of eggs, a major source of protein for the middle class, rose by 20.1% over the same period. China’s other main concern is the cost of energy, because it is also a net importer of coal, natural gas, and crude oil. Increased demand from Chinese factories resuming produc- tion during the post-pandemic eco- nomic recovery contributed to further increases in the prices of en- ergy commodities. Chinese regula- tors responded by increasing the cap on subsidized electricity prices. But this was insufficient to offset the losses to electricity generators as coal prices and domestic demand contin- ued to rise. As a consequence, power plants in several northeastern provinces shut down in September 2021, leading to sudden mass power outages and a cascade of economic and social disruptions. The Chinese government has since increased the price cap even more and boosted domestic production of coal, using its large reserves. But China’s reserves of other energy sources are limited, and demand for energy is likely to continue to rise. These economic concerns, along with a desire to present a common front against the United States, help to explain China’s commitment to the “no limits” relationship with Rus- sia that President Xi Jinping and Russian President Vladimir Putin pro- claimed in early February. Energy is ISSUE 160 APRIL 2022 the BANKING EXECUTIVE 43 China’s other main concern is the cost of energy, because it is als a net importer of coal, natural gas, and crude oil Energy is the economic centerpiece of Sino-Russian relations