Experts highlight green investment, manufacturing in spurring growth

China will have sufficient monetary and fiscal policy space next year, which should support mid-to-high-end manufacturing, green investment and technological development to become new drivers of economic growth, industry experts said.

Qu Hongbin, chief economist for China at HSBC, said proactive fiscal policy will become a major force supporting the country's economic expansion. Qu estimated the nation's deficit-to-GDP ratio will remain unchanged at around 3.2 percent in 2022, but the broad measure of deficit-to-GDP ratio may rise at least 1 percentage point to around 7.3 percent.

Qu said China may launch new tax cuts and fee reductions to support small and medium-sized enterprises and weak links in the economy. In addition, the country may provide direct funding or loan guarantees to new growth drivers, such as the upgrading of the manufacturing industry, technological innovation and green development.

The nation may also issue about 1 trillion yuan ($157 billion) worth of green government bonds in 2022 to support electrification and green technological development, apart from accelerating the approval process for new infrastructure projects, including 5G, digitalization and electric vehicle charging stations, he added.

The economist said China will see rapid growth of investment in the mid-to-high-end manufacturing sector and an expansion of green investment, which will help the country gradually reduce its reliance on fossil fuels and eventually achieve green transformation.

"In 2022, China's specific measures for green investment may include constructing large renewable energy bases, building the smart grid to realize green power supply, promoting electrification, and improving energy utilization efficiency of industrial departments. These will not only be conducive to green transformation of the economy, but also boost investment.

"We estimate that the country's green financing, backed by policies, is likely to achieve a growth rate of around 34 to 41 percent," Qu said.

Tian Xuan, associate dean of the PBC School of Finance at Tsinghua University, said the annual Central Economic Work Conference held in Beijing from Dec 8 to Dec 10 indicated that maintaining economic stability has become the focal point highlighted by top Chinese leaders.

Policymakers must take a long-term view on policy regulation cycles, seek new drivers of economic development, continue to deepen reforms and make industrial structural adjustments, Tian said in an article published on his official WeChat account on Monday.

China should step up support for manufacturing, sci-tech innovation companies and micro, small and medium-sized enterprises. The nation should also promote the construction of major engineering projects and emphasize the role of infrastructure investment, especially new infrastructure investment, in boosting the economy.

The country should also regulate the pace of local government bond issuance and strengthen support for major areas and weak links in the economy, he said.

It is important for China to maintain continuity and stability of monetary policy and make preparations in a timely manner to deal with monetary policy turns in other countries next year. In addition, the nation should make an overall plan and control the total amount of credit in the real estate sector, focus on containing defaults on local government debt and prevent risk contagion among small and medium-sized banks, Tian said.

According to the conference, the nation's monetary policy should guide financial institutions to step up support for the real economy－the part of a country's economy that produces actual goods and services, said Xiong Yi, China chief economist at Deutsche Bank.

In recent years, the People's Bank of China, the central bank, has strengthened financial support for smaller enterprises. The PBOC said on Nov 8 that it has rolled out a new monetary policy instrument to support carbon emissions reductions, which will in turn support green development. Deutsche Bank expects the PBOC will launch more policies to further ramp up lending to innovative enterprises, Xiong said.

"The Chinese government will carry out reforms promoting economic growth and will be cautious in rolling out policies that have a contractionary effect," he said.