The Chinese economy had its worst performance in decades last year as growth was dragged down by multiple Covid lockdowns, followed by a deadly outbreak in December that spread across the country at a remarkable pace.
China grew 3 percent annually, numbers released Tuesday showed, less than half that in 2021 and below Beijing’s target of 5.5 percent. Except for 2020, this is the most disappointing since 1976, the year of Mao Zedong’s death, when the economy shrank 1.6 percent.
The government’s strict “zero Covid” restrictions beyond 2022 have strangled the economy with frequent quarantines, regional lockdowns and massive spending to pay for widespread testing. Then on Dec. 7, China Raised the policy without warning Almost three years later. Within weeks, the virus had infected hundreds of millions of people, killed many elderly residents and left factories, offices and restaurants bereft of workers and customers.
A policy reversal by China’s top leader, Xi Jinping, has fueled hopes that the economy will get back on its feet this spring. It is of great importance to the world. China’s 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 depends on the development of political legitimacy.
Despite the blow caused by “zero Covid”, China appears to have grown faster than its main rivals such as the US, Japan and Germany, all of which were estimated by economists at less than 2 per cent last year.
In the decade before the pandemic, China’s economy was one of the world’s most dynamic, growing at an average of 7.7 percent a year. In the last three months of 2022, the growth was 2.9 percent, according to official data. In the previous quarter.
Many economists warned that China may have overstated the level of activity in the final three months of the year. Capital Economics, a London-based research firm, did its own calculation from detailed government figures on the industry and found growth of 0.5 percent, not 2.9 percent.
Goldman Sachs economists expressed skepticism about the government’s figure for December, which was much stronger than expected, even though daily indicators such as subway use had previously shown many Chinese staying at home as they got sick or were hiding from the virus. “Given the large Covid waves in the month, it’s quite surprising in our view that the numbers reported in December weren’t worse,” Goldman said in a research note.
Chinese officials insist the economy will rebound after the peak of the epidemic. Traffic jams have reappeared and subway trains in Beijing and Shanghai are increasingly crowded. Shops on Shanghai’s famous Nanjing Road, China’s fifth avenue, are no longer empty. The domestic terminals of major Chinese airports are overflowing with passengers. This optimism is reflected in China’s stock markets, which have rallied in recent weeks.
But the path forward is very uncertain. Because a large portion of China’s population, especially the elderly, is not fully vaccinated, the risk of new Covid variants is high. The property sector of the economy, normally the main driver of wealth, is weighed down by enormous corporate debt. And this Population of the country has started to shrink, the government said on Tuesday, after a year-long decline in its birth rate.
Many economists are already writing off January and probably February as well. Many workers have already returned to their hometowns for 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 bustling river city of light industry and wholesale markets in southeastern China. In interviews there this month, nearly a dozen residents said that while the December wave of cases appeared to be subsiding, the damage lingers.
Yiwu endured a tough, 10-day lockdown in August to stem a 500-case virus outbreak, only experiencing a wave of cases when “zero Covid” measures were lifted in mid-December.
Today, restaurants are only one-third full, and many are permanently closed. Many shops, which should have been bustling with people buying gifts ahead of the Lunar New Year celebrations that begin this weekend, were almost empty.
Yuan Hao, owner of a flower shop no bigger than a walk-in closet, said some of the storefronts near him have seen many businesses open and quickly close in the past year. Merchants found that almost no one was spending money. Now nobody buys flowers for Lunar New Year, he said.
“All the money we’ve earned has been spent and there’s no way to save money,” he said.
Jin Weiying runs a storefront wholesale business selling Lunar New Year decorations and accessories. But his customers — retailers across China — are ordering fewer items than usual and demanding deeper discounts.
“In the good old days, it was normal for customers to order eight or ten sets per deal, but now they only order two or three sets,” said Mr. Jin said. Even when normalcy returns, the common man has no cash.
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 popular medicines amid the Covid outbreak. To revive consumer spending, China needs to repair their confidence. The government’s consumer confidence index fell last month to its lowest level in more than three decades.
Much of the money saved by households during lockdowns is locked away in fixed deposit accounts for long periods of time. What’s more, a central bank survey of urban depositors last month found a record number of Chinese planned to increase their savings, which could at least dampen consumption.
Another difficulty for policymakers in Beijing is the slowdown in foreign demand. Higher interest rates imposed by the US Federal Reserve and other central banks have slowed the economies of other countries and reduced their appetite for imports from China.
Chinese officials reported Friday that exports fell 9.9 percent in December from a year earlier, including nosedives of 19.5 percent to the United States and 17.5 percent to countries in the European Union.
In Yiw, thousands of foreign buyers flock to the Long Export Wholesale Market. But after China closed its borders in March 2020, a few months after the pandemic, most were unable to visit. Many looked elsewhere for suppliers.
One of the companies with sales offices in Yiwu Export Market is Tian Cheng Glass, which mainly produces jugs and cups for Middle Eastern customers. Tian Cheng had annual sales of $10 million before the pandemic, said Zeng Xiaohong, the company’s retail sales manager. Now they are less than half.
“It’s much better in 2019, you’ll meet random foreigners,” he said, standing in a deserted stall at the export market, surrounded by shelves covered in glassware. “Then they didn’t come here.”
With many local governments deep in debt, new connections between neighborhoods and cities could make China even more competitive. For example, Yiwu, which opened its first two light rail lines in the past six months, saw nationwide infrastructure spending jump 9.4 percent last year.
The national government has begun bailing out China’s real estate sector with credit lines from state banks. Construction work has been completed on several apartment blocks in the country, where work has been halted.
The rapid spread of Covid across the country in the past month has been a public health disaster for China. Some analysts believe that higher rates of infection will help propel the economy forward by avoiding more outbreaks and making the overall population more resilient to serious illness.
Wang Xiongfeng, a 46-year-old Yiwu resident, said he and several people he knew in Yiwu fell ill in mid-December. But they mostly recovered and resumed their lives as they did before the pandemic.
Mr. Xi said he expects more foreign buyers to come to Yiwu soon to place orders for exports and start revitalizing the city’s economy. Wang said. “Things will get better,” he predicted.
Li Yu Research contributed.