China’s Slowest Economic Growth in Decades Still Tops Expectations
Due to Covid lockdowns and a real estate crisis, China’s economy grew at its weakest rate in four decades last year, but the reading exceeded expectations, raising prospects for a robust recovery once it reopens.
Last year, supply lines were disrupted by Beijing’s uncompromising commitment to its zero-Covid strategy of strict containment, which virtually cut off the country from the rest of the world. This shook the entire economy.
The measures caused the growth to be only 3% last year, the weakest number since a 1.6pc decline in 1976—the year Mao Zedong passed away—except the pandemic hit in 2020.
The representative of the National Bureau of Statistics, Kang Yi, stated on Tuesday that China’s economy had experienced difficulties in the global sphere in 2022. Despite falling short of the government’s desired 5.5% growth rate and being below the previous year’s figures, it was still better than the 2.7% prediction made by a survey of analysts conducted by AFP.
The fourth quarter data also exceeded expectations, offering some hope for the upcoming year 2023. Additionally, retail sales dropped by a lesser degree of 1.8% in December, in contrast to the projected 9%, as the easing of restrictions allowed consumers to return to shopping in physical stores. Industrial production and investment in fixed assets also surpassed predictions, and unemployment also dropped from the previous month.
Global Supply Chain Impacted by China’s Economic Struggles
The economic struggles experienced by China in the previous year had far-reaching impacts on a global supply chain that was already dealing with a decrease in demand resulting from increasing prices and interest rate hikes by central banks.
The strict lockdowns, quarantines, and mandatory mass testing led to the sudden shuttering of factories and businesses in major centers, including Zhengzhou, the location of the largest iPhone factory in the world. Despite loosening pandemic restrictions in December amidst significant protests, the move has led to a spike in infections throughout the country, raising concerns about the immediate effects on the economy. The World Bank predicts that China’s GDP will recover to 4.3% by 2023, which is still below expectations.
The real estate industry continues to impede economic expansion. The construction and property sectors, which constitute over a quarter of China’s GDP, have experienced significant difficulties since the government began to curb excessive borrowing and rampant speculation in 2020. This regulatory tightening resulted in financial troubles for Evergrande, a former leading real estate company that is now grappling with a large amount of debt.
As a result, property sales have decreased in various cities and numerous developers are struggling to remain afloat. Nevertheless, the government seems to be adopting a more conciliatory approach to rejuvenating the industry by introducing measures to foster “stable and healthy” growth in November, such as credit aid for indebted developers and help for deferred-payment loans for homebuyers.
HSBC’s chief economist for Greater China, Jing Liu, stated that the process of normalization will likely be difficult, with the potential for a temporary setback followed by a strong resurgence. Liu also noted that the implementation of various measures to provide funding support to developers and stimulate housing demand will aid in stabilizing the property market.
On the other hand, JP Morgan Asset Management’s Chaoping Zhu expressed optimism and forecasted a steady economic recovery in 2023 resulting from the reopening of businesses and government stimulus. Zhu believes that service industries will be among the first to benefit from the release of pent-up demand.