February 4, 2023

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The Chinese economy faltered last year as growth stalled due to the coronavirus

China’s economy experienced its worst performance in decades last year, as growth slowed due to several Covid-19 lockdowns, followed by a deadly outbreak in December that swept across the country with remarkable speed.

Figures released on Tuesday showed China growing 3 percent over the year, well below half the level in 2021 and below Beijing’s target of 5.5 percent. Other than 2020, it was the most disappointing showing since 1976, the year Mao Zedong died, when the economy fell 1.6 percent.

The government’s strict “zero Covid” restrictions have overshadowed 2022, choking the economy through frequent quarantines, regional lockdowns and massive spending to pay for widespread testing. Then on December 7th, China Policy lifted without notice After nearly three years. Within weeks, the virus infected hundreds of millions of people, killed many elderly residents, and left factories, offices, and restaurants empty of workers and customers.

A policy reversal by Xi Jinping, China’s supreme leader, has raised hope that the economy will regain its footing this spring. Whether it is of great importance to the world. Consumers in China are an almost indispensable source of income for both domestic and foreign companies. Its factories produce a larger share of the world’s industrial production than the United States, Germany, and Japan combined. The Chinese Communist Party relied on growth for political legitimacy.

Despite the blow inflicted by “zero Covid”, China appears to have grown faster last year than major competitors such as the United States, Japan and Germany, which economists estimate 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 rate of 7.7 percent annually. In the last three months of 2022, growth slowed to 2.9 percent according to official data, which is a low previous quarter.

Many economists have 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 own calculations from government statistics broken down by industry and found growth of 0.5 per cent, not 2.9 per cent.

Economists at Goldman Sachs expressed skepticism about the government’s figures for December, which were much stronger than expected even though daily indicators such as subway use previously showed that many Chinese stayed home last month as they fell ill or hid from the virus. “It is very surprising, in our opinion, that the reported numbers for December were not worse, given the significant Covid wave of the month,” Goldman said in a research note.

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Chinese officials insist that the economy will rebound after the peak in infections. Traffic jams have reappeared, and subways are increasingly crowded in Beijing and Shanghai. Shops along Shanghai’s famous Nanjing Road, China’s Fifth Avenue, are no longer empty. Domestic terminals of large Chinese airports are crowded with passengers. The optimism is reflected in Chinese stock markets, which have risen in recent weeks.

But the road ahead is very vague. Large parts of China’s population, especially the elderly, are not fully vaccinated, which leads to an increased risk of contracting 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 population of the nation the government said on Tuesday, after years of declining birthrates.

Many economists are already writing off January and possibly February as well. Huge numbers of workers have already headed 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 the cities to work.

The economic scars of “Zero Covid” are visible in Yiwu, a river town once bustling with light industry and wholesale markets in southeast China. In interviews there this month, nearly a dozen residents said that even as the tide of cases subsided in December, the damage was still there.

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

Yuan Hao, the owner of a flower shop no bigger than a large wardrobe, said that in some storefronts near him, many shops opened and then closed quickly in the past year. Traders found that almost no one ever spent money. He said that now almost no one buys flowers for the Lunar New Year.

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

Jin Weiying runs a storefront wholesale business that sells Lunar New Year decorations and accessories. But his customers – retailers from all over China – are ordering smaller supplies than usual and demanding deep discounts.

“In the old days, it was normal for customers to order eight or ten boxes per deal, but now they only order two or three sets,” said Mr. Jin. “Even if it returns to normal, the general public has no 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 jump for retail sales of medicines as people hoarded amid the Covid outbreak. To revive consumer spending, China must repair their confidence. The government’s consumer confidence index fell last month to the lowest level measured in more than three decades.

Much of the money that households save money during lockdowns sits in fixed deposit accounts, locked in for longer periods of time. Moreover, a central bank survey of urban depositors last month found record numbers of China’s plan to increase their savings, a trend that could dampen consumption at least in the near term.

Another difficulty for Beijing policymakers is that external demand has fallen. High interest rates imposed 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 on Friday that exports fell 9.9 percent in December from a year earlier, including nose dives, down 19.5 percent to the United States and 17.5 percent to European Union countries.

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In Yiwu, thousands of foreign buyers used to visit the wholesale market for export in bulk. But most of them were unable to visit after China closed its borders in March 2020, a few months after the outbreak of the epidemic. Many have looked for suppliers elsewhere.

One company with sales offices in Yiwu export market is Tian Cheng Glass, which manufactures jugs and mugs, mainly for customers in the Middle East. Zheng Xiaohong, the company’s retail manager, said that before the epidemic, Tiancheng’s sales were about $10 million a year. Now they are less than half of that.

“It was much better in 2019, and you would have met random foreigners then,” she said, standing in an abandoned stall in the export market, surrounded by shelves covered in glassware. “Then they didn’t come here.”

While many local governments are deeply in debt, new connections between neighborhoods and cities could make China more competitive. For example, Yiwu opened its first two light rail lines in the past six months, and infrastructure spending nationwide jumped 9.4 percent last year.

The national government has also begun bailing out the Chinese real estate sector with lines of credit from state banks. Construction has been completed on some of the country’s many apartment complexes where work has been halted.

The speed with which Covid has raced across the country in the past month has been a public health disaster for China. Some analysts hope that higher infection rates, barring more outbreaks, will help move the economy forward by leaving the population at large more resilient to serious illness.

Wang Xiongfeng, 46, a resident of Yiwu, said he and several other people he knew in Yiwu fell ill in mid-December. But they have mostly recovered and resumed living more than they did before the pandemic.

Mr. Wang said he expects more foreign buyers to come to Yiwu to place orders for export soon, and for the city’s economy to begin to recover. He predicted that “things will get better.”

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