(Yicai Global) Feb. 22-- With two months of 2022 almost gone, it has been a gloomy start to the year economically. Whilst the previous year was all about the global economy seemingly roaring back from Covid-19 declines, with unbridled market optimism, 2022 has been anything but. The peaking of recovery to normal trends, combined with gaping levels of inflation which have beset major economies such as the UK and the US, expectations that interest rates are set to rise in turn, as well as growing uncertainty surrounding a Russia-Ukraine conflict, have all created a whirlwind of negativity which has comprehensively tanked markets in the west.

America’s Nasdaq 100 index, having peaked at an all-time high of 16501 on Jan. 5, has now slumped over 2500 points, rolling back six months of progress. The S&P 500 as well as Dow Jones have not lost scope so dramatically, but are also down from their peaks considerably and have struggled regain momentum. Whilst markets are infamously reactionary, the mood of the year has been set and a cold economic reality which was disguised by the premise of states moving back from covid declines, is now crystalizing.

It is no surprise on such a note that China’s economic forecast for 2022 is considerably lower, estimated on average by economists to be between 5-5.5%, facing headwinds both domestically and internationally. Yet in the broader context, this ought to a sign of strength in the Chinese economy as opposed to weakness, it illustrates that China is still an important engine of global economic growth and the particular changes it faces on its own merits are in fact different to those experienced by western economies. This has led to the monetary policies of China and western economies going in different directions.

First of all, China is not experiencing an inflation crisis as seen in the west. There are multiple reasons why. Whilst western inflation has surged due to consumption being frontloaded by covid disruption, supply chain constraints and enormous government stimulus policies (such as in the United States), China’s maintenance of relative stability in handing covid, combined with a conservative approach to stimulus over the past two years has meant there has been less large-scale disruption to consumption activity.

Nonetheless, on the other hand the influence of this restrained monetary policy, as well as targeted localized lockdowns and general social cautiousness also mean China’s consumer growth has been weaker as a general rule, and growth has been overly reliant on manufacturing output. Whilst China’s manufacturing and export growth in 2022 may not be as high given circumstances overseas, re-igniting the consumer economy will be an important priority throughout the year.

Given this, whilst interest rate rises will rise in the west and put breaks on the economy, China in 2022 is taking the opposite path by cutting interest rates and loosening monetary policy, increasing liquidity and borrowing. This means as the west is facing a forced slowdown through an overheating, China has “kept its powder dry” metaphorically and has room to manoeuvre to keep its growth above 5%.

This combined with the market situation in the west also means China’s markets will consolidate its place, as it did in 2020 and most of 2021, as a “safe haven” for investors as the boom in Wall Street stocks ultimately dries up, whilst the Russia-Ukraine crisis poses tremendous problems for European markets and indices. Likewise, as China’s regulatory environment in tech consolidates and crackdowns offset, confidence from investors will also recover.

In conclusion, whilst mainstream media coverage on China’s economy has been almost consistently negative, when viewed in context the year of 2022 is set to be an optimistic, as opposed to a pessimistic year. China shows resilience in overcoming various headwinds and has multiple tools at its disposal to continue a high-level of growth whilst the covid recovery boom overseas grinds to a halt. China is not suffering from an inflation forced slowdown and in turn has the potential to become once again an important foundation of global growth throughout the year.