China’s economy performed one of its worst in decades last year as growth was held back by numerous Covid lockdowns, followed by a deadly outbreak in December that swept through the country with remarkable speed.
China grew 3 percent this year, figures released Tuesday, well less than half of its 2021 level and less than Beijing’s target of 5.5 percent. Excluding 2020, it was the most disappointing performance since 1976, the year Mao Zedong died, when the economy contracted by 1.6 percent.
The government’s strict “zero Covid” restrictions cast a shadow over 2022, strangling the economy with frequent quarantines, regional lockdowns and massive spending to pay for widespread testing. On December 7, China lifted the policy without warning after nearly three years. Within weeks, the virus had infected hundreds of millions of people, killed many elderly residents and robbed factories, offices and restaurants of workers and customers.
The policy reversal by Xi Jinping, China’s top leader, has raised hopes that the economy will get back on track this spring. Whether that is so is of great significance to the world. Chinese consumers are an almost irreplaceable source of income for domestic and foreign companies. The factories produce a larger share of global industrial output than the United States, Germany and Japan combined. The Chinese Communist Party depends on growth for political legitimacy.
Despite the blow dealt by ‘zero Covid’, China appears to have grown faster last year than major rivals like the United States, Japan and Germany, all of which grew by less than 2 percent last year, according to economists.
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 percent. In the last three months of 2022, growth sputtered to 2.9 percent, according to official data, down from the previous quarter.
Many economists warned that China may have exaggerated its level of activity in the last three months of the year. Capital Economics, a London-based research firm, did its own calculation based on detailed government statistics by industry and found that growth was 0.5 percent, not 2.9 percent.
Goldman Sachs economists were skeptical of the government’s December data, which came in much stronger than expected, although daily indicators such as subway use had previously shown that many Chinese stayed home last month because they got sick or hid from the public. the virus. “It is, in our view, very surprising that the numbers reported for December were not worse given the large Covid surge in the month,” Goldman said in a research note.
Chinese officials insist the economy will recover after the peak of the infections. There are traffic jams again and the subways are filling up 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 overcrowded with travelers. The optimism is reflected in Chinese stock markets, which have risen in recent weeks.
But the road ahead is very uncertain. Large parts of the Chinese population, especially the elderly, are not fully vaccinated, which means there is an increased risk of new Covid variants. The real estate sector of the economy, normally a major driver of wealth, is weighed down by massive corporate debt. And the country’s population is beginning to shrink, the government said on Tuesday, after years of a decline in the birth rate.
Many economists are already writing off January and probably February as well. Large numbers of workers are already heading to their hometowns for Lunar New Year celebrations, in many cases for the first time in three years. No one knows when they will trickle back into the cities for work.
The economic scars of “zero Covid” are visible in Yiwu, a once bustling riverside city of light industry and wholesale markets in southeastern China. In interviews there this month, nearly a dozen residents said that even as the surge in December cases appears to be abating, the damage continues.
Yiwu endured a harsh, 10-day lockdown in August to stem a virus outbreak with 500 cases, but faced a surge in cases in mid-December as “zero Covid” measures were lifted.
Today, eateries are only a third full and many are permanently closed. Many stores were almost empty when they should have been bustling with people buying gifts in the run-up to the Lunar New Year celebrations due to begin this weekend.
Yuan Hao, the owner of a flower shop no bigger than a walk-in closet, said several businesses opened in some storefronts near him in the past year and then quickly closed. Traders found that hardly anyone was spending money. And now hardly anyone buys flowers for the Lunar New Year, he said.
“All the money we make has been spent and there is no way to save more money,” he said.
Jin Weiying runs a window display wholesaler that sells decorations and accessories for the Lunar New Year. But his customers – retailers from all over China – are ordering fewer supplies than usual and are demanding hefty discounts.
“It used to be normal for customers to order eight or ten boxes per deal, but now they only order two or three sets,” said Mr. Jin. “Even when things return to normal, ordinary people will not have money in their hands.”
China’s retail sales fell 1.8 percent in December compared to the same month in 2021, the National Bureau of Statistics said, despite a 39.8 percent increase for drug retail sales as people stocked up during the Covid outbreak . To revive consumer spending, China needs to rebuild their confidence. The government’s consumer confidence index fell to its lowest level in more than three decades last month.
Much of the money that households have saved during the lockdowns is held in fixed deposit accounts, which have been tied up for longer periods of time. In addition, a central bank survey of urban savers last month found that a record number of Chinese are planning to increase their savings, a trend that could dampen consumption at least in the short term.
Another difficulty for policymakers in Beijing is that foreign demand has fallen. Higher interest rates imposed by the US Federal Reserve and other central banks have dampened other countries’ economies and reduced their appetite for imports from China.
Chinese officials announced on Friday that exports fell 9.9 percent in December from a year earlier, including 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 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 have sought suppliers elsewhere.
One of the companies with sales offices in Yiwu’s export market is Tian Cheng Glass, which makes pitchers and cups mainly for Middle East customers. Tian Cheng had sales of about $10 million a year before the pandemic, said Zheng Xiaohong, the company’s retail manager. Now they are less than half.
“It was much better in 2019, and you would run into random foreigners,” she said, standing in an abandoned stall at the export market, surrounded by shelves full of glassware. “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, opened its first two light rail lines in the past six months. Infrastructure spending across the country rose 9.4 percent last year.
The national government has also started bailing out China’s real estate sector with lines of credit from state-owned banks. Construction on some of the country’s many apartment complexes where work was stalled has been completed.
The speed at which Covid has swept through the country over the past month has been a public health disaster for China. Some analysts hope that high rates of infection, aside from more outbreaks, could help the economy move forward by making 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 largely recovered and resumed their lives more like before the pandemic.
Mr. Wang said he expected more foreign buyers would soon come to Yiwu to place export orders and the city’s economy would rebound. “It will get better,” he predicted.
Li you contributed research.
