China’s economy posted one of its worst performances in decades last year as growth was weighed down by multiple Covid lockdowns before the deadly outbreak swept the country with alarming speed in December.
Data released on Tuesday showed that China grew 3% this year, well below half of 2021 levels and below the 5.5% target set by Beijing. Outside of 2020, it was the most disappointing performance since 1976, the year of Mao Zedong’s death, when the economy shrank 1.6%.
The government’s strict “zero-Covid” restrictions cast a pall over 2022, with frequent quarantines, regional lockdowns and huge spending to pay for widespread testing stifling the economy. Then on Dec. 7, China withdrew the policy without warning for the first time in nearly three years. Within weeks, the virus had infected hundreds of millions of people, killing many elderly residents and depriving factories, offices and restaurants of workers and customers.
A policy reversal by China’s top leader, Xi Jinping, has raised hopes that the economy will regain its footing this spring. Whether it does so has implications for the world. Chinese consumers are an almost irreplaceable source of revenue for local and foreign companies. Its factories account for a greater share of the world’s manufacturing output than the United States, Germany and Japan combined. The Chinese Communist Party relies on economic growth for political legitimacy.
Despite being hit by “zero outbreaks,” China appeared to grow faster last year than major rivals such as the U.S., Japan and Germany, which economists estimate grew 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 annual rate of 7.7%. Economic growth slowed to 2.9% in the final three months of 2022, slower than in the previous quarter, according to official data.
Many economists have warned that China may have overstated the level of economic activity in the last three months of the year. Capital Economics, a London-based research firm, did its own calculations, based on detailed government industry statistics, and found that growth added up to 0.5 per cent, rather than 2.9 per cent.
Economists at Goldman Sachs cast doubt on the government’s December data, which was much stronger than expected, even though daily indicators such as subway usage had previously shown that many Chinese stayed home last month to get sick or escape the virus. “We think it is very surprising that the reported December numbers were not worse, given the large Covid wave in December,” Goldman Sachs said in a research note.
Chinese officials insist the economy will bounce back after the infection peak. Traffic jams are back in Beijing and Shanghai, with subway trains getting fuller. Shops along Nanjing Road, Shanghai’s famous China’s fifth avenue, are no longer empty. Domestic terminals at China’s largest airports are packed with travelers. The optimism is reflected in Chinese stocks, which have rallied in recent weeks.
But the road ahead is fraught with uncertainty. Much of China’s population, especially the elderly, is not fully vaccinated, leading to an increased risk of new Covid variants emerging. The economy’s real estate sector, often a major driver of wealth, is weighed down by massive corporate debt. The government said Tuesday that the country’s population is shrinking after years of declining birth rates.
Many economists are already writing off January and possibly February. Large numbers of workers have already traveled to their hometowns to celebrate the Lunar New Year, in many cases for the first time in three years. No one knows when they will return to work in the city.
The scars of the “Covid-free” economy are visible in Yiwu, a once-thriving light industry and wholesale market town in southeastern China. In interviews this month, nearly a dozen residents said that while the wave of cases in December appears to be ebbing, the damage remains.
Yiwu endured a difficult 10-day lockdown in August to contain a virus outbreak of 500 cases, but suffered another wave of cases after “zero Covid” measures were lifted in mid-December.
Today, restaurants are only a third full, and many have permanently closed. Many shops that should have been bustling with gift-buying ahead of the upcoming Lunar New Year celebrations this weekend were all but empty.
Yuan Hao, the owner of a flower shop with a small cloakroom, said that in some shops near him, several shops opened and closed quickly in the past year. Merchants found that almost no one was spending their money. Hardly anyone is buying flowers for Chinese New Year these days, he said.
“We spent all the money we earned and couldn’t save any more,” he said.
Kim Weiying runs a storefront wholesale business selling Lunar New Year decorations and accessories. But his customers – retailers from across China – are ordering fewer than usual and are demanding steep discounts.
“In the good old days, it was normal for customers to order eight to ten boxes per transaction, but now they only order two or three sets,” Mr Wang said. Kim said. “Even if it returns to normal, the common people will have no money in their hands.”
China’s National Bureau of Statistics said retail sales in China fell 1.8% in December compared with the same month in 2021, despite a 39.8% jump in drug retail sales as people stocked up amid the Covid outbreak. To revive consumer spending, China must restore their confidence. The government’s consumer confidence index fell last month to its lowest level in more than three decades.
Most of the money households saved during the lockdown was kept in term deposit accounts, locked for longer periods of time. In addition, a central bank survey of urban savers last month found that a record number of Chinese plan to save more, a trend that could dampen consumption, at least in the short term.
Another difficulty facing policymakers in Beijing is falling foreign demand. Higher interest rates imposed by the Federal Reserve and other central banks have dampened the economies of other countries and reduced their appetite for imports from China.
Chinese officials announced Friday that exports fell 9.9% in December from a year earlier, with exports to the US down 19.5% and exports to EU countries down 17.5%.
In Yiwu, thousands of foreign buyers once patronized the block-long export wholesale market. But most were unable to visit after China closed its borders in March 2020, just a few months into the pandemic. Many look elsewhere for suppliers.
One of the companies with a sales office in the Yiwu export market is Tiancheng Glass, which mainly produces kettles and cups for customers in the Middle East. Zheng Xiaohong, the company’s retail manager, said Tiancheng had annual sales of about $10 million before the pandemic. Now they are less than half.
“2019 is much better, when you meet random foreigners,” she said, standing in an abandoned stall in the export market, surrounded by shelves full of glassware. “Then they didn’t come here.”
While many local governments are already deep in debt, new connections between communities and cities could make China more competitive. Yiwu, for example, opened its first two light rail lines in the past six months. National infrastructure spending jumped 9.4 percent last year.
The central government has also begun using credit lines from state-owned banks to bail out China’s real estate sector. Work has stalled on many apartment complexes in the country, some of which have already been completed.
The speed at which the novel coronavirus has spread across the country over the past month has been a public health disaster for China. Some analysts hope that, barring more outbreaks, high infection rates can help propel the economy forward and make the overall population more resilient to severe illness.
Wang Xiongfeng, a 46-year-old Yiwu resident, said that in mid-December, many people he and Yiwu knew fell ill. But most of them have recovered and returned to their lives compared to before the pandemic.
gentlemen. Wang said he expected more foreign buyers to come to Yiwu soon to place orders for export and for the city’s economy to start recovering. “Things are going to get better,” he predicted.
Li You contributed research.