China's economy stumbled last year as Covid lockdowns impeded growth

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The Chinese economy had one of its worst performances in decades last year, when growth was hampered by multiple Covid lockdowns, followed by a deadly outbreak in December that swept the country with remarkable speed.

China grew 3 percent on the year, figures released on Tuesday showed, less than half the level in 2021 and far short of Beijing’s target of 5.5 percent. With the exception of 2020, it was the most disappointing showing since 1976, the year after Mao Zedong’s death, when the economy fell by 1.6%.

On December 7, China lifted its strict “zero Covid” restrictions without warning after nearly three years. Within weeks, the virus had infected hundreds of millions of people, overwhelming hospitals and funeral homes and leaving factories, offices and restaurants without workers and customers.

The reversal of policy by Xi Jinping, China’s top leader, although it brought the economy to a standstill in December, has raised hopes that it will regain its footing later this year. Whether this happens is of great importance to the rest of the world. China’s consumers are an almost irreplaceable source of revenue for local and foreign companies. Its factories produce a larger share of the world’s industrial output than the United States, Germany, and Japan combined. The Chinese Communist Party has depended on growth for political legitimacy.

Despite the blow inflicted by “zero Covid”, China appears to have grown faster last year than big rivals such as the United States, Japan and Germany, all of which, according to economists’ estimates, grew by less than 2% last year.

In the decade before the pandemic, China’s economy was one of the most dynamic in the world, growing by an average of 7.7% per year. But in the last three months of 2022 growth has slowed to 2.9%, down from the previous quarter.

Chinese officials insist the economy will recover after the spike in infections. Traffic jams have reappeared and metro trains are increasingly crowded in Beijing and Shanghai. The stores along Shanghai’s famous Nanjing Road, China’s Fifth Avenue, are no longer empty. Domestic terminals at major Chinese airports are crowded with travelers. The optimism is reflected in China’s stock markets, which have risen in recent weeks.

But the way forward is deeply uncertain. Much of China’s population, especially the elderly, are not fully vaccinated, increasing the risk of new Covid variants. The real estate sector of the economy, typically one of the main drivers of wealth, is weighed down by massive corporate debt.

Many economists are already ruling out January and probably February as well. Large 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. Nobody knows when they will return to the cities to work.

“The March activity data and confidence could start to surprise on the upside,” said Louise Loo, an economist in the Singapore office of Oxford Economics.

The economic scars of “Covid zero” are visible in Yiwu, a once bustling riverside city of light industry and wholesale markets in southeast China. In interviews this month, nearly a dozen residents said that even as December’s wave of cases appears to be subsiding, the damage persists.

Yiwu endured a strict 10-day lockdown in August to quell a virus outbreak of 500 cases, only to suffer a surge in cases in mid-December when “zero Covid” measures were lifted.

Today, the restaurants are only a third full and many have closed permanently. Many stores were nearly empty when they should have been packed with people buying gifts ahead of Lunar New Year celebrations set to begin this weekend.

Yuan Hao, who owns a closet-sized flower shop, said that in some of the stores near him, several stores opened and closed quickly last year. Merchants found that almost no one was spending money. And now hardly anyone is buying flowers for Lunar New Year, he said.

“All the money we earn has been spent and there is no way to save any more money,” he said.

Jin Weiying runs a wholesale shop that sells Lunar New Year decorations and accessories. But its customers – retailers across China – are ordering fewer supplies than usual and demanding deep discounts.

“In the good old days, it was normal to have customers order eight or 10 boxes per deal, but now they only order two or three sets,” Jin said. “Even if it goes back to normal, ordinary people don’t have money in their hands.”

Tenants’ experiences are supported by national data.

Pork prices across the country, a highlight of the Lunar New Year feasts, are lower than usual for this time of year, said Darin Friedrichs, director of market research at Sitonia Consulting, an agricultural commodities firm. from Shanghai.

Retail sales in China fell by 1.8% in December compared with the same month in 2021, the National Bureau of Statistics also announced on Tuesday. To revive consumer spending, China must restore its confidence – a tall order. The government’s consumer confidence index fell last month to the lowest measured level in more than three decades.

Families have saved money during lockdowns that have forced them to stay at home, data from China’s central bank shows. But much of the increase is in fixed deposit accounts, locked in for longer periods of time. In addition, a central bank survey of urban depositors found last month that a record number of Chinese are planning to increase their savings, a trend that could reduce consumption at least in the short term.

Another difficulty for policymakers in Beijing is that foreign demand has dropped. Higher interest rates imposed by the US Federal Reserve and other central banks have dampened their economies and dampened 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 declines of 19.5 percent to the United States and 17.5 percent to countries in the European Union.

In Yiwu, thousands of foreign buyers used to visit the Block Export Wholesale Market. But most were unable to visit after China closed its borders in March 2020, just months after the pandemic began. Many looked elsewhere for suppliers.

One of the companies with sales offices in Yiwu’s overseas market is Tian Cheng Glass, which manufactures vases and glasses, mainly for customers in the Middle East. Tian Cheng had about $10 million a year in sales before the pandemic, said Zheng Xiaohong, the company’s retail manager. Now it’s less than half that.

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

While many local governments have fallen deeply into debt, new connections between neighborhoods and cities could 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 was completed on some of the country’s many apartment complexes where work had stalled, such as a sprawling complex in Dongguan, a city near Hong Kong, built by Evergrande, a nearly bankrupt property developer.

The speed with which Covid swept through the country last month has been a public health disaster for China. Some analysts believe that high infection rates, barring more outbreaks, could help boost the economy, making the general 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 recovered and went back to living their lives more like before the pandemic.

Mr. Wang said he hopes more foreign buyers will soon come to Yiwu to place export orders and the city’s economy will start to recover. “Things will get better,” he predicted.

read you contributed research.


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