China’s economy had one of its worst performances in decades last year as growth was dampened by multiple Covid lockdowns, followed by a deadly outbreak in December that swept through the country with remarkable speed.
China grew by 3 percent for the year, numbers released on Tuesday showed, less than half the level in 2021 and well below Beijing’s target of 5.5 percent. Aside from 2020, it was the most disappointing performance since 1976, the year of Mao Zedong’s death, when the economy shrank 1.6 percent.
On December 7, China picked up without warning its strict ‘zero Covid’ restrictions after almost three years. Within weeks, the virus infected hundreds of millions of people, overwhelming hospital wards and funeral homes and leaving factories, offices and restaurants bereft of workers and customers.
A policy reversal by Xi Jinping, China’s supreme leader, crippled the economy in December but raised hopes that it would recover later this year. Does it matter much to the rest of the world. Consumers in China are an almost indispensable source of revenue for domestic and foreign companies. Its factories produce a larger share of the world’s manufacturing output than the United States, Germany and Japan combined. The Chinese Communist Party depends on growth for political legitimacy.
Despite the blow from “zero Covid”, China appears to have grown faster last year than major rivals such as the United States, Japan and Germany, all of which economists say expanded by less than 2 percent last year.
In the decade before the pandemic, China’s economy was one of the most dynamic in the world, growing at an average of 7.7 percent per year. But in the final three months of 2022, growth sputtered to 2.9 percent, down from the previous quarter.
Chinese officials insist the economy will recover after the peak of infections. Traffic jams have reappeared and subway trains in Beijing and Shanghai are increasingly full. Shops along Shanghai’s famous Nanjing Road, the Fifth Avenue of China, are no longer empty. The domestic terminals of major Chinese airports are crowded with passengers. The optimism is weighing on Chinese stock markets, which have rallied in recent weeks.
But the way forward is deeply uncertain. Large parts of China’s population, especially the elderly, are not fully vaccinated, leaving an increased risk of new Covid variants. The property sector of the economy, normally a key driver of wealth, is saddled with massive corporate debt.
Many economists are already writing off January, and possibly February as well. Huge numbers of workers have already headed to their hometowns for the Lunar New Year celebrations, in many cases for the first time in three years. No one knows when they will return to the cities for work.
“March activity data and confidence may start to surprise on the upside,” said Louise Lu, an economist at the Singapore office of Oxford Economics.
The economic scars of “zero Covid” are visible in Yiwu, a once bustling river city of light industry and wholesale markets in Southeast China. In interviews there this month, nearly a dozen residents said that even as the wave of cases in December appears to be subsiding, the damage remains.
Yiwu underwent a severe, 10-day lockdown in August to quell a virus outbreak of 500 cases, only to suffer a wave of cases in mid-December when “zero Covid” measures were lifted.
Today, eateries are only one-third full, and many are permanently closed. Many shops were almost empty when they should have been bustling with people buying gifts ahead of the Lunar New Year celebrations, which are due to start this weekend.
Yuan Hao, owner of a flower shop no bigger than a closet, said that in some of the storefronts near him, several businesses have opened and then quickly closed over the past year. Marketers found that almost no one was spending money. And now almost no one buys flowers for the Lunar New Year, he said.
“All the money we earn is spent and there is no way we can save any more money,” he said.
Jin Weiying runs a wholesale shop that sells Lunar New Year decorations and accessories. But his customers—retailers from across China—are ordering fewer supplies than usual and demanding deep discounts.
“In the good old days, it was normal for customers to order eight or ten boxes per deal, but now they only order two or three sets,” Mr Jin said. “Even if it goes back to normal, ordinary people don’t have money in their hands.”
The experience of traders is confirmed by national data.
Prices across the country for pork, a highlight of Lunar New Year banquets, are lower than usual for this time of year, said Darin Friedrichs, director of market research at Sitonia Consulting, an agricultural commodities firm in Shanghai.
China’s retail sales fell 1.8 percent in December compared with the same month in 2021, the National Bureau of Statistics also said Tuesday. To revive consumer spending, China must restore consumer confidence—a difficult task. The government’s consumer confidence index fell last month to the lowest level measured in more than three decades.
Households saved money during lockdowns that forced them to stay at home, data from China’s central bank showed. But much of the increase is in fixed deposit accounts locked in for longer periods of time. What’s more, a central bank survey of urban depositors found last month that a record number of Chinese plan to increase their savings, a trend that could dampen consumption at least in the near term.
Another difficulty for policymakers in Beijing is falling foreign demand. Higher interest rates imposed by the US Federal Reserve and other central banks have depressed their economies and reduced their appetite for imports from China.
Chinese officials announced on Friday that exports fell 9.9 percent in December compared with the same month a year earlier, including a 19.5 percent drop to the United States and 17.5 percent to European Union countries.
In Yiwu, thousands of foreign buyers visited the block-long wholesale export market. But most were unable to visit after China closed its borders in March 2020, just months after the pandemic began. Many have looked elsewhere for suppliers.
One of the companies with sales offices in the Yiwu export market is Tian Cheng Glass, which produces jugs and glasses, mainly for customers in the Middle East. Tian Cheng had about $10 million in annual sales before the pandemic, said Zheng Xiaohong, the company’s retail manager. Now they are less than half.
“It was much better in 2019, and then you would meet random foreigners,” she said, standing in an empty stall at the export market, surrounded by shelves covered in glassware. “Then they didn’t come here.”
Although many local governments are deeply in debt, new connections between neighborhoods and cities may make China even more competitive. Yiwu, for example, opened its first two light rail lines in the past six months.
The national government has also started bailing out China’s real estate sector with credit lines from state-owned banks. Construction has finished on some of the country’s many housing estates where work had stalled, such as a sprawling complex in Dongguan, a city near Hong Kong, built by Evergrande, a near-bankrupt developer.
The speed with which Covid has swept through the country in the past month has been a public health disaster in China. Some analysts believe that high infection rates, barring more outbreaks, could help propel the economy forward by making the entire population more resistant to serious illness.
Wang Xiongfeng, a 46-year-old Yiwu resident, said he and many other people he knew in Yiwu fell ill in mid-December. But they had almost recovered and continued to live their lives more like before the pandemic.
Mr. Wang said he expects more foreign buyers will soon come to Yiwu to place export orders and the city’s economy will begin to revive. “Things will get better,” he predicted.
Li Ti contributed research.
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