Shanghai lockdown weighs on Chinese economy

Is this the last “good figure” for the Chinese economy in a long time? Beijing announced on Monday, April 18, a rebound in its growth, in the first quarter of 2022, of 4.8% in one year. It is true that the figure is far from the pre-COVID-19 – when Chinese growth hovered around 6-7% in 2018 and 2019, or even 10% a few years earlier, but performance is still better than expected (4.3%).

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However, it contrasts with the images of Shanghai showing its streets completely deserted, or almost. Because the 25 million inhabitants of the country’s economic and financial capital have been partially confined since the end of March, and strictly since the beginning of April, under the effect of an epidemic outbreak linked to the Omicron variant. The Chinese authorities, who practice the “Covid zero” strategy, have decided on this confinement, the consequences of which on the country’s activity are perceptible.

Several tens of millions of confined Chinese

Undoubtedly, the first signs of a slowdown are there: unemployment rises slightly (from 5.5% to 5.8%), retail sales plummet (+7.5% in January-February to –3, 5% in March), production is slowing down (+7% at the beginning of the year and +5% in March), as is growth, which accelerated less than in the first quarter.

“It is difficult, under these circumstances, to imagine that the country will reach the national objective set by the communist power of a GDP growth of 5.5% by the end of 2022”, says Christopher Dembik of Saxo Bank. And it is not for less: the confinements block household consumption -in addition to Shanghai, 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 automotive industry.

The port of Shanghai works with difficulty, and in slow motion. It is difficult to access and receives fewer goods from the country because certain sectors are completely paralyzed in the confined regions, “which weigh 40% of Chinese GDP”Christopher Dembik emphasizes.

China’s quest for growth

For Xi Jinping, who wants to be re-elected at the end of 2022 for a new term as head of the country, the stakes are high. “The great question, analyze Philippe Waechter chez Ostrum Asset Managementit is to know where Chinese growth can come from now. Because not only is domestic consumption weakening, but foreigners are now buying less from China, hit by rising energy prices and the war in ukraine in particular. Finally, the real estate sector, which until now has been a pillar of Chinese activity, is threatened by the bursting of an over-indebtedness bubble. »

→ EXPLANATION. In Asia, the limits of the “Covid zero” strategy

The difficulties are already beginning to be exported. Particularly through the international trade channel: supply chains had barely begun to recover from the first Covid-related shock two years ago, when they found themselves weakened again: cargo not arriving at the port of Shanghai, or late. , or that are incomplete, ships that leave late or less loaded than usual, canceling some stops on their return…

“The disturbances in Chinese transport are added to those related to the war in Ukraine and the sanctions against Russia, or even to specific causes such as the dockers’ strike in the United States,” deciphers Christopher Dembik.

European recession?

When China coughs, does the West get the flu? Economists are divided. For Philippe Waechter, this Chinese brake will not be without consequences, in particular on the European economy, which according to him should “Being in recession in 2022, before the United States in 2023. In addition, the German economy has already been in decline for two quarters, penalized by the drop in Chinese demand. » However, if the European economic locomotive slows down, “France, which is its first trading partner, will in turn be attracted and trapped”provided by Philippe Waechter.

At Saxo Bank, Christopher Dembik knows that he will have to revise down his growth forecasts, but not to the point of ending a recession by 2022. Although he admits that from now on, “the global economy faces many shocks, both deep and simultaneous”. And to quote Covid, “from which one emerges less easily than expected”the war in Ukraine and the energy shock it is helping to intensify; and the difficulties of China, the long-standing engine of the world economy.

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