The Chinese economy had one of its worst performances in decades last year, as growth was stunted by multiple Covid lockdowns, followed by a deadly outbreak in December that swept across the country with remarkable speed.
China grew 3 percent this year, figures released Tuesday showed, well under half of 2021 levels and below Beijing’s target of 5.5 percent. Excluding 2020, it was the most disappointing result since 1976, the year Mao Zedong died, as the economy contracted 1.6 percent.
The government’s strict “zero-Covid” restrictions cast a shadow over 2022, choking the economy with frequent quarantines, regional lockdowns and massive spending on widespread testing. Then, on December 7, China lifted the policy without warning after nearly three years. Within weeks, the virus had infected hundreds of millions of people, killing many elderly residents and leaving factories, offices and restaurants without workers and customers.
The change of course by Xi Jinping, China’s supreme leader, has raised hopes that the economy will regain traction this spring. Whether this is the case is of great importance to the world. China’s consumers are an almost irreplaceable source of income 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 relied on growth for its political legitimacy.
Despite the blow “zero-Covid” has dealt, China appears to have grown faster over the past year than major rivals like the United States, Japan and Germany, all of which grew less than 2 percent over the past year, according to economists’ estimates .
In the decade before the pandemic, China’s economy was one of the most dynamic in the world, growing at an average of 7.7 percent a year. In the final three months of 2022, growth stuttered to 2.9 percent, down from the previous quarter, according to official data.
Many economists warned that China may have exaggerated activity levels in the last three months of the year. Using detailed government statistics by industry, Capital Economics, a London-based market research firm, did its own calculation and found that growth was 0.5 percent, not 2.9 percent.
Goldman Sachs economists expressed skepticism about the government’s December figures, which came in much stronger than expected, even though daily indicators such as subway use had previously shown that many Chinese had stayed at home over the past month because they got sick or hid from the virus. “It is very surprising, in our view, that the reported numbers for December were not worse given the month’s major Covid outbreak,” Goldman said in a research note.
Chinese officials insist the economy will recover after infections have peaked. Traffic jams have resurfaced and subways in Beijing and Shanghai are increasingly crowded. The shops along Shanghai’s famous Nanjing Road, the Fifth Avenue of China, are no longer empty. Domestic terminals at major Chinese airports are overcrowded with travelers. The optimism is reflected in China’s stock markets, which have risen in recent weeks.
But the way forward is deeply uncertain. Large parts of the Chinese population, especially the elderly, are not fully vaccinated, putting them at increased risk of new Covid variants. The real estate sector of the economy, normally a major contributor to wealth, is weighed down by enormous corporate debt. And the country’s population has started to shrink, the government said Tuesday, after a year-long decline in the birth rate.
Many economists are already writing off January and probably February as well. Large numbers of workers have already traveled to their hometowns for the Lunar New Year celebrations, 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 once bustling river city of light industry and wholesale markets in southeast China. In interviews there this month, nearly a dozen residents said that even if the wave of falls appears to be abating in December, the damage is still ongoing.
Yiwu endured a harsh 10-day lockdown in August to wipe out a virus outbreak with 500 cases, only to suffer a surge of cases in mid-December when “zero Covid” measures were lifted.
Today, the restaurants are only a third full and many are permanently closed. Many stores were nearly empty when they should have been bustling with people buying gifts ahead of the Lunar New Year celebrations, which are due to start this weekend.
Yuan Hao, the owner of a flower shop no larger than a walk-in closet, said several stores opened in some storefronts near him in the past year and then quickly closed. Traders found that almost no one was spending money. And now almost nobody is buying flowers for the Lunar New Year, he said.
“All the money we make has been spent and there’s no way to save more money,” he said.
Jin Weiying runs a wholesale business that sells Lunar New Year decorations and accessories. But its customers — retailers from across China — are ordering fewer supplies than usual and demanding big discounts.
“In the good old days, it was normal for customers to order eight or 10 boxes per deal, but now they only order two or three sets,” Mr. Jin said. “Even if it’s back to normal, the common people don’t have any money in their hands.”
Retail sales in China fell 1.8 percent in December from the same month in 2021, the National Bureau of Statistics said, despite a 39.8 percent increase in drug retail sales as people relax during the Covid-19 pandemic – Stock up outbreak. To revive consumer spending, China needs to restore their confidence. The government’s consumer confidence index fell to its lowest level in more than three decades last month.
Much of the money households have saved during the lockdown sits in fixed deposit accounts that are frozen for long periods of time. In addition, a central bank survey of urban savers last month revealed that a record number of Chinese are planning to increase their savings, a trend that could dampen consumption, at least in the near term.
Another difficulty for Beijing policymakers 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 said on Friday that December exports fell 9.9 percent year on year, including plunges of 19.5 percent to the United States and 17.5 percent to European Union countries.
In Yiwu, thousands of foreign buyers used to visit the block-long export wholesale market. But most have been unable to visit after China closed its borders in March 2020, just months after the pandemic began. Many have looked elsewhere for suppliers.
One of the companies with sales offices in the Yiwu export market is Tian Cheng Glass, which manufactures jugs and cups, mainly for customers in the Middle East. Tian Cheng had annual sales of about $10 million before the pandemic, said Zheng Xiaohong, the company’s retail manager. Today it is less than half.
“2019 was a lot better, and you happened to meet foreigners back then,” she said while standing in an abandoned stall in the export market, surrounded by glassware-covered shelves. “Then they didn’t come here.”
While many local governments are heavily indebted, 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. Statewide infrastructure spending 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 has been completed on some of the country’s many apartment complexes where work has stalled.
The speed at which Covid swept through the country over the past month has been a public health disaster for China. Barring further outbreaks, some analysts are hoping that high infection rates could help propel the economy by making the general population more resilient to serious diseases.
Wang Xiongfeng, a 46-year-old Yiwu resident, said that he and many other people he knew in Yiwu became ill in mid-December. But they had mostly recovered and were living their lives more like they were before the pandemic.
Mr. Wang said he expected more foreign buyers to come to Yiwu to place export orders soon and that the city’s economy would pick up again. “It will get better,” he predicted.
Li You contributed to the research.