China’s economy enjoyed its best performance in decades last year when growth was slowed by the Covid-19 lockdown followed by the deadly outbreak in December that swept the country so quickly.
China grew at an annual rate of 3 percent, data released on Tuesday showed, less than half of the 2021 rate and well below Beijing’s 5.5 percent rate. Except for 2020, it was the worst showing since 1976, the year after Mao Zedong’s death when the economy contracted by 1.6 percent.
On December 7, China lifted its “zero Covid” restrictions without warning after nearly three years. Within weeks, the virus had infected hundreds of millions of people, plagued hospitals and funeral homes, and left factories, offices and restaurants without employees and customers.
The policy changes by Xi Jinping, China’s supreme leader, which disrupted the economy in December, have raised hopes that it will recover by the end of this year. Whether or not it does is of great significance to the entire world. Chinese consumers are a constant source of income for domestic and foreign companies. Its factories produce a larger share of the world’s gross domestic product than the United States, Germany and Japan combined. The Chinese Communist Party has relied on growth for its political legitimacy.
Despite the hit with “zero Covid,” China appears to have grown faster last year than major rivals such as the United States, Japan and Germany, all of which economists say grew by less than 2 percent last year.
Ten years before the outbreak, China’s economy was one of the fastest growing in the world, growing at an annual rate of 7.7 percent. But in the last three months of 2022 growth slowed to 2.9 percent, down from the previous quarter.
Chinese officials are insisting that the economy will pick up after the epidemic is over. Traffic congestion has also become evident and subway trains are overcrowded in Beijing and Shanghai. The shops along Shanghai’s famous Nanjing Road, the Fifth Avenue of China, are empty. China’s airports are crowded with travelers. This optimism is reflected in China’s stock market, which has risen in recent weeks.
But the way forward is very uncertain. Many parts of China, especially the elderly, do not have enough vaccinations, leaving an increased risk of new types of Covid. The financial sector of the economy, which often drives the economy, is burdened by large corporate debts.
Many economists are already writing for January and possibly February. Many workers have already gone to their hometowns to celebrate the New Year, often for the first time in three years. No one knows when they will return to the cities to work.
“The developments in March and the confidence may surprise,” said Louise Loo, an economist at the Singapore office of Oxford Economics.
The economic crisis of “zero Covid” is visible in Yiwu, a city that was filled with a river of light industry and trading markets in the southeast of China. In an interview there this month, about a dozen people said that while the December cases appear to be slowing down, the damage continues.
Yiwu endured a 10-day lockdown in August to contain 500 cases of the virus, but faced more cases in mid-December when “zero Covid” measures were lifted.
Today, restaurants are only one-third full and many have closed completely. Many shops were empty when they should have been busy with people buying gifts ahead of the New Year celebrations this week.
Yuan Hao, who owns a flower shop no bigger than a walk-in closet, said that in other shopping centers near him, several businesses opened and closed quickly last year. Businessmen found that almost no one was spending money. And now almost no one is buying flowers for the Lunar New Year, he said.
“All our income is gone and there is no way to save more money,” he said.
Jin Weiying runs a retail business that sells New Year decorations and other items. But his customers – sellers from all over China – are ordering fewer items than usual and want deep discounts.
“In the good old days, it was common to have customers order eight or ten boxes per contract, but now they only order two or three sets,” Mr. Jin said. Even after normalcy returns, ordinary people do not have money in their hands.
The experience of retailers is determined by national data.
Global pork prices, popular during New Year’s celebrations, are lower than usual this year, said Darin Friedrichs, director of market research at Sitonia Consulting, an agricultural products company in Shanghai.
China’s retail sales fell 1.8 percent in December compared to the same month in 2021, the National Bureau of Statistics also announced on Tuesday. To revive consumer spending, China must improve their confidence – a difficult task. The government’s consumer confidence index fell last month to its lowest level in more than three decades.
Households are hoarding cash during the lockdown which is forcing them to stay at home, reports from China’s central bank show. But the biggest increase is in the fixed deposit account, which is locked for a long time. In addition, a bank survey of urban depositors found last month that a growing number of Chinese people want to increase their savings, which could reduce spending in the near future.
Another challenge for policymakers in Beijing is that foreign demand has slowed. Higher interest rates imposed by the US Federal Reserve and other central banks have reduced their economies and reduced their appetite for imports from China.
Chinese officials announced on Friday that exports fell by 9.9 percent in December compared to the same month last year, including noses 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 local goods market. But many were unable to visit China after it closed its borders in March 2020, just a few months after the outbreak. Many have looked for suppliers elsewhere.
One of the companies with sales offices in the Yiwu market is Tian Cheng Glass, which produces jars and cups, mainly for customers in the Middle East. Tian Cheng had about $10 million in annual sales before the outbreak, said Zheng Xiaohong, the company’s sales manager. Now they are less than half of that.
“It was good in 2019, and you’d meet random foreigners at that time,” he said, standing in a booth at an export market, surrounded by glass-covered shelves. “So he didn’t come here.”
While many local governments have gone into deep debt, new connections between regions and cities could make China more competitive. For example, Yiwu has opened its first two railway lines in the past six months.
The country’s government has also started paying off loans to Chinese real estate companies and state-owned banks. Construction has ended in many other parts of the country where work has stalled, such as a tower block in Dongguan, a city near Hong Kong, built by Evergrande, a homebuilder that is on the brink of bankruptcy.
The speed with which Covid raced across the country last month has become a public health concern in China. Some researchers believe that reducing the number of infections, preventing further spread, could help improve the economy by leaving more people less vulnerable to serious illness.
Wang Xiongfeng, 46, a resident of Yiwu, said that he and many other people he knew in Yiwu fell ill in December. But many had recovered and resumed their lives as before the epidemic.
Mr. Wang said he hoped that more foreign buyers would soon come to Yiwu to place export orders, and that the city’s economy would get off to a good start. “Things will get better,” he said.
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