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China’s economy was hobbled last year with Covid lockdowns hampering growth

China’s economy was hobbled last year with Covid lockdowns hampering growth

 


The Chinese economy had one of its worst performances in decades last year, as growth was dragged down by multiple Covid lockdowns followed by a deadly outbreak in December that swept across the country at breakneck speed.

China grew by 3 percent for the year, figures released on Tuesday showed, less than half the level in 2021 and short of Beijing’s target of 5.5 percent. Apart from 2020, it was the most disappointing showing since 1976, the year Mao Zedong died, when the economy shrank 1.6 percent.

Governments’ strict zero restrictions on Covid cast a pall over 2022, stifling the economy with frequent quarantines, regional lockdowns and massive spending to pay for widespread testing. Then, on December 7, China removed the policy without warning after nearly three years. Within weeks, the virus had infected hundreds of millions of people, killed many elderly residents, and left factories, offices, and restaurants without workers or customers.

The policy reversal by Xi Jinping, China’s top leader, has fueled hopes that the economy will regain its footing this spring. If it will happen, it is of great importance to the world. Chinese consumers are an almost irreplaceable 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 has depended on growth for political legitimacy.

Despite the shock caused by zero Covid, China appears to have grown faster last year than key rivals such as the United States, Japan and Germany, all of which are estimated by economists to have expanded 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. In the last three months of 2022, according to official data, growth fell to 2.9 percent, a drop from the previous quarter.

Many economists warned that China may have exaggerated the level of activity in the last three months of the year. Capital Economics, a London research firm, did its calculation from detailed government statistics by industry and found growth increased to 0.5 percent, not 2.9 percent.

Economists at Goldman Sachs expressed skepticism about government numbers for December, which were much stronger than expected even though daily indicators such as subway use had previously shown that many Chinese stayed at home last month after falling ill or hid from the virus. It is very surprising in our view that the reported numbers for December were not worse, given the large Covid wave in the month, Goldman said in a research note.

Chinese officials insist the economy will bounce back after the peak of infections. Traffic jams have reappeared and subway trains are increasingly crowded in Beijing and Shanghai. Shops along Shanghai’s famous Nanjing Road, China’s Fifth Avenue, are no longer empty. The domestic terminals of major Chinese airports are packed with travelers. The optimism has been reflected in China’s stock markets, which have rallied in recent weeks.

But the way forward is deeply uncertain. A large part of China’s population, especially the elderly, is not fully vaccinated, leaving an increased risk of new Covid variants. The property sector of the economy, usually a major driver of wealth, is weighed down by huge corporate debt. And the nation’s population is starting to shrink, the government said Tuesday, after years of declining birthrates.

Many economists are already writing off January and possibly February. A large number of workers have already left for 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.

The economic scars of zero Covid are visible in Yiwu, a once-vibrant riverside city of light industry and wholesale markets in southeast China. In interviews there this month, nearly a dozen residents said that even though the December wave appears to be subsiding, the damage continues.

Yiwu endured a tough 10-day lockdown in August to quell a 500-case virus outbreak, only to suffer a wave of cases in mid-December when zero-covid measures were lifted.

Today, the restaurants are only one-third full, and many have closed for good. Many shops were almost empty when they should have been full of people buying gifts ahead of the Lunar New Year celebrations that were due to start this weekend.

Yuan Hao, the owner of a flower shop no bigger than a closet, said that in some of the storefronts near him, several businesses opened and then quickly closed last year. Marketers found that almost no one was spending money. And now almost no one is buying flowers for the Lunar New Year, he said.

All the money we earn is spent and there is no way to save more money, he said.

Jin Weiying runs a storefront wholesale business that sells Lunar New Year decorations and accessories. But his retail customers from all over China are ordering fewer supplies than usual and asking for deep discounts.

In the good old days, it was normal for customers to order eight or ten boxes for each deal, but now they only order two or three sets, Mr. Jin said. Even if it returns to normal, the common people do not have money in their hands.

Retail sales in China fell 1.8 percent in December compared with the same month in 2021, the National Bureau of Statistics said, despite a 39.8 percent jump in retail sales of medicine as people huddled amid the Covid outbreak. To revive consumer spending, China must repair their confidence. The government’s index of consumer confidence fell last month to the lowest level measured in more than three decades.

Most of the money saved by households during the lockdowns is placed in fixed deposit accounts, closed for longer periods of time. In addition, 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 that foreign demand has fallen. Higher interest rates set by the US Federal Reserve and other central banks have weakened the economies of other countries and reduced their appetite for imports from China.

Chinese officials announced Friday that exports fell 9.9 percent in December from a year earlier, including nose dives of 19.5 percent to the United States and 17.5 percent to countries in the European Union.

In Yiwu, thousands of foreign buyers visited the wholesale block export market. But most were unable to visit after China closed its borders in March 2020, just months into the pandemic. Many of them have looked elsewhere for suppliers.

One of the companies with sales offices in the Yiwu export market is Tian Cheng Glass, which produces pitchers 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 there are less than half of that.

It was much better in 2019, and you would meet random foreigners then, she said, standing at a deserted stall in the export market, surrounded by glass-covered shelves. Then they didn’t come here.

While many local governments have gone deep into debt, new connections between neighborhoods and cities could make China even more competitive. Yiwu, for example, has opened its first two light rail lines in the past six months Nationwide infrastructure spending rose 9.4 percent last year.

The national government has also begun bailing out China’s real estate sector with credit lines from state-owned banks. Construction has been completed on several of the many apartment complexes in the country where work had stalled.

The speed with which Covid swept through the country in the past month has been a public health disaster for China. Some analysts hope that high infection rates, barring more outbreaks, could help move the economy forward by leaving the general population more resilient to becoming seriously ill.

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 mostly recovered and resumed living their lives more as they did before the pandemic.

Mr. Wang said he expected more foreign buyers to come to Yiwu soon to place export orders and for the city’s economy to begin to revive. Things will get better, he predicted.

Li Ti contributed to research.

Sources

1/ https://Google.com/

2/ https://www.nytimes.com/2023/01/16/business/china-gdp-fourth-quarter-2022.html

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