China’s economy grew 4.8 percent year on year in the first quarter, stronger-than-expected growth, official Chinese data showed on Monday. The threat of a sharp deceleration for the next few months, however, it hangs over the country’s economy, as it is weighed down by health restrictions and the war in Ukraine. The Chinese economy is facing “to significant challenges”, even recognized a top economic official during a press conference. In the fourth quarter of 2021, the country’s GDP had grown by 4% year-on-year.
Beijing has set itself the growth target “about 5.5%” this year, which would be for China the weakest rate since the early 1990s, apart from the year 2020 marked by the first wave of Covid. Given the context, this goal now seems “unattainable”estimates in a note the economist Larry Hu, of the Australian asset manager Macquarie.
The rise in the first quarter of 2022 was widely anticipated by the different analysts cited by theAFP et Reuters. A group of analysts surveyed by AFP expected a more moderate rebound (4.3%), just as the experts consulted by Reuters forecast an increase of 4.4%.
China, which had largely controlled Covid-19 for two years, is facing its worst outbreak since last month. Several tens of millions of Chinese were confined in March in the technological metropolis of Shenzhen (south), and continue to be confined in the northeast of the country, the cradle of the automobile industry, as well as in Shanghai, the economic capital of the country. Contrary to many countries that choose to live with the virus and lift restrictions, China continues with a zero Covid policy.
Consumption at half mast
Seriously damaging transport and supply chains, these restrictive measures have caused many businesses to close. These difficulties were added to those that had already weighed on the Chinese economy in recent months: slow consumption, regulatory tightening in various sectors such as real estate and technology, and uncertainties related to Ukraine. Closings in March “hard hit” consumer spending, particularly in stores and restaurants, analyst Rajiv Biswas, from the firm IHS Markit (S&P Global), underlines for AFP.
In March, retail sales, the main indicator of household spending, fell by 3.5% year-on-year, its biggest drop since April 2020, when the Asian giant was just beginning to emerge from the first wave of the ‘epidemic crisis. The consequences of the confinement in Shanghai in April will be “important” on consumption, Biswas warns, arguing that his people have the highest disposable income in China.
Industrial production slightly up
For its part, industrial production only increased last month by 5% year-on-year, compared to 7.5% in the first two months of the year. The unemployment rate rose to 5.8% in March from 5.5% in January and February. Particularly monitored by the authorities and calculated only for urban dwellers, the unemployment rate had reached an all-time high of 6.2% in February 2020, at the height of the epidemic, before receding.
The impact of lockdowns on the economy is “probably underrated” by the figures published on Monday, observes the analyst Julian Evans-Pritchard, of the firm Capital Economics, who says he is “Surprised” for growth resilience. In any case, the April figures will be poor due to logistical disruptions, which will weigh on GDP in the second quarter, he said.
Above all, the real estate and construction sectors are also at half-staff. They weigh more than a quarter of the country’s GDP and had played a key role in 2020 in the post-pandemic recovery. The current situation contrasts sharply with that of last year: China had then seen its growth jump 18.3% in the first quarter, due to a catch-up effect with 2020, when Covid-19 had paralyzed the economy.
“China faces multiple headwinds, including Covid-related lockdowns and (a slowdown in) the real estate sector”, says Mr. Hu. The setbacks of the developer Evergrande, on the verge of bankruptcy, seized the entire sector.
Inflation accelerated sharply last month in China. In March, the consumer price index rose 1.5% year-on-year compared to 0.9% in February, announced the National Bureau of Statistics (BNS). Experts were betting on a lower rise, around 1.4%, according to the consensus of the financial agency Bloomberg.
This increase is related to “the global increase in the prices of wheat, corn and soybeans” said Dong Lijuan, a statistician with the SNB. In fact, world food prices have skyrocketed since Russia invaded Ukraine on February 24. Thus, the prices of fresh vegetables increased by 17.2% in one year.
Geopolitical turning point
China has refused for the time being to condemn the Russian operation in Ukraine but intends to maintain good relations with Russia, whose hydrocarbons and other raw materials are of interest to it in order to ensure its supply. Beijing will reduce its dependence on the West, as illustrated by the approach of CNOOCthe Chinese oil and gas giant, which will sell all its holdings in Great Britain, Canada and the United States, reveals the Reuters agency.
Threatened in turn with sanctions for its support of Russia, subject to a Western embargo since its military invasion of Ukraine, Beijing wants to prevent some of its assets from being seized abroad.
More generally, the war in Ukraine and the sanctions imposed on Russia are disrupting international trade. It should already collapse by half in 2022, warns the World Trade Organization (WTO). In the longer term, it is in fact a “disintegration” of the global trading system that it would threaten. Two blocks based on geopolitical issues would then emerge, one centered on the United States and the other around China, whose exchanges between them would be extremely limited. Such a scenario would reduce global welfare in 2040 by 5%.
(with AFP and Reuters)