Taipei, Taiwan – China could be heading for negative economic growth in some sectors and regions this year as it grapples with the worst economic indicators since the start of the pandemic, economic analysts have warned.
The Chinese Communist Party (CCP) has locked down tens of millions of people since the start of 2022 to contain the spread of the Omicron variant, severely hampering key economic sectors including services and manufacturing.
The draconian measures disrupted production at factories operated by companies from Foxconn to Tesla and Toyota, and slashed retail sales as millions of people were forced to stay at home.
The Purchasing Managers’ Index, a key indicator that measures the health of the manufacturing sector, fell to 49.5% in March and 47.4% in April, according to China’s National Bureau of Statistics. A reading below 50 indicates a contraction. In Shanghai, the most populous city, first-quarter retail sales fell 3.8% from a year earlier.
While Beijing warns against any deviation from its controversial “dynamic Covid Zero” strategy, there are few signs of a respite from the economic haemorrhage on the horizon.
On Tuesday, WHO Director-General Tedros Adhanom Ghebreyesus said China’s strategy was unsustainable and that “change would be very significant”, in a rare public criticism of China’s handling of the pandemic. the country.
Shanghai, a key financial and manufacturing hub, has been under a form of lockdown since late March, while much of Beijing has come to a standstill as authorities scramble to put in place ever-tighter controls to avoid a city-wide lockdown.
“Worst Set of Numbers”
“The toll of what we’re seeing in China right now is hands down the worst set of numbers we’ve seen in terms of economic performance since the initial downturn that took place in 2020,” said Shehzad Qazi, chief executive of China Beige Book. , which surveys about 1,000 companies in China each quarter, told Al Jazeera.
April results from China Beige Book showed revenue and margin growth fell in China’s manufacturing, retail and service sectors, with new hiring returning to earlier levels. pandemic and loans down sharply.
None of this bodes well for Beijing’s ambitious target of 5.5% gross domestic product (GDP) growth in 2022, Qazi said, as the pursuit of “zero COVID” at all costs makes traditional economic tools, such as monetary stimulus, largely ineffective.
“The credit can only be used if you have normal economic activity, or if you have businesses that are functioning,” Qazi said, adding that the CCP is “very limited in what it can do if you simultaneously force the people to stay at home”. ”.
Far from adjusting the draconian pandemic strategy, the authorities have in recent days tightened restrictions in Shanghai and Beijing. More than 373 million people in 45 cities were in some form of lockdown as of mid-April, according to analysis by Nomura Holdings in Japan.
Qazi said he expects the economy to contract in the second quarter of 2022 if such measures continue, although a full-blown recession is less certain. China last reported a quarter of negative growth in April 2020, but has not experienced a recession – defined as two consecutive quarters of contraction – since the 1970s.
Even without a full-scale recession, the shutdowns could create uneven growth between north and south China as well as between industries, said Gary Ng, Asia-Pacific economist for Natixis, a French investment bank and of business.
“Even if it doesn’t go into recession across the country, if we look at some provinces, I wouldn’t be surprised to see negative growth for some of the provinces with strict lockdowns,” Ng told Al Jazeera. .
As Shenzhen, a manufacturing hub neighboring Hong Kong, emerged from its lockdown earlier this year as factories continued to operate, Ng said exporting the “Shanghai model” elsewhere could have serious economic ramifications. .
Tommy Wu, senior economist for Oxford Economics in Hong Kong, said a measure of particular concern is the effect of lockdowns on logistics and supply chains, with truck flow data at around 30% of levels. normal.
Wu said he expects the disruptions to last until the second quarter of 2022 with a “ripple effect” on Asian and global supply chains and uneven growth in the Chinese economy.
“It’s not as bad as 2020, but it’s still pretty big, bigger than what we’ve seen in the last two years,” he said.
“I think official statistics will still tell you very weak growth… but I would say there will be contraction at least in some sectors like consumption and also manufacturing.”
Beijing has drawn attention to growing economic risks ahead of a key National Congress in October without acknowledging that its zero-tolerance policies have been far from successful.
This year’s party congress is of particular significance as Chinese leader Xi Jinping is set to seek an unprecedented third term.
At a Politburo meeting last month, China’s top leaders stressed the importance of spending and building infrastructure for economic recovery, despite government efforts in recent years to reduce huge debts on balance sheets. public companies.
“China could actually trade off its call for deleveraging with essentially near-term short-term economic growth,” Ng said, adding that accommodative monetary policy could also help companies weather the storm.
Natixis has estimated that for China to meet its GDP targets in 2022, infrastructure investment would need to increase by nearly 18%, returning to pre-2017 levels. infrastructure grew 8.5% in the first quarter compared to 2021, but there is still some way to go, the bank said.
On the consumer side, Ng authorities could seek to reduce down payments and interest rates for first-time buyers and even second-timers.
The real estate sector is set to recover from a low point at the end of 2021 and the start of the year – when big companies like Evergrande defaulted on their loans – amid signs of a possible reprieve for beleaguered tech companies.
After Beijing launched a sweeping regulatory crackdown on the tech sector in 2020, imposing restrictions on data collection, service fees and even app usage in pursuit of “common prosperity”, media outlets States have signaled in recent weeks the need for greater support for the industry. .
Qazi of China Beige Book said the issue could return to the national agenda in 2023 or 2024, but for now the CCP is focused on maximum stability and calm financial markets as it winds down. heading to its October meeting.
In the meantime, “zero COVID” seems here to stay.
Oxford Economics’ Wu said he could begin to move towards a more “dynamic” definition of strategy as Beijing finds itself both unable to admit defeat and also needs an economic recovery.
As part of such an adjustment, provincial and municipal governments could begin to gradually lift area-based lockdowns as individual districts are cleared of COVID cases and ease more extreme measures, he said, while continuing mass testing.
“This year, although I think it’s really difficult to achieve this goal [growth target]they’ll try as hard as they can,” Wu said. “It’s an important political year, so it’s important for them to balance things out.”