China has recently underscored its commitment to debt sustainability and common prosperity, increasing regulation on sectors including real estate and technology that highlight an increasing wealth gap.
“This balance in China between growth and financial stability tends to run in minicycles,” said Alexis Gray, a Vanguard senior economist who studies China. “The focus perhaps was financial stability a large part of last year. This year, growth, we think—at least in the first half—will be more of a priority.”
Comfortably reaching the growth target may require greater predictability about regulation. A Vanguard analysis suggests that the regulatory environment, as defined by both its clarity and its stringency, affects growth, said Maximilian Wieland, a Vanguard economist who focuses on China and other emerging markets economies.
“A more predictable regulatory environment through some sort of road map at the National People’s Congress will be important to the amount of monetary policy stimulus required to meet China’s growth target,” Wieland said.
Uncertainty or evidence of more restrictive regulatory policy would necessitate a 10% to 10.5% increase in 2022 in the stock of total social financing—an aggregate central bank measure of credit and liquidity—to achieve 5% growth. Greater clarity about China’s regulatory efforts and evidence of an easing of restrictions to levels seen from 2018 to 2020 would suggest that only a 9% increase in total social financing would be required.