China’s economy teeters amid lockdowns
China may be headed for negative economic growth in certain sectors and regions this year as it struggles with the worst economic indicators since the start of the pandemic, economic analysts have warned.To get more
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China’s 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 impeding key economic sectors, including services and manufacturing.The draconian measures have disrupted production at factories operated by firms from Foxconn to Tesla and Toyota, and crimped retail sales as millions have been forced to stay at home.
The Purchasing Managers’ Index, a key metric that measures the health of the manufacturing sector, fell to 49.5 percent in March and 47.4 percent 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 percent compared with the previous year.
As Beijing warns against deviating from its controversial “dynamic Covid Zero” strategy, there are few signs of a respite from the economic bleeding on the horizon.
On Tuesday, WHO Director-General Tedros Adhanom Ghebreyesus said China’s strategy is not sustainable and a “shift would be very important,” in a rare public criticism of the country’s handling of the pandemic.Shanghai, a key financial and manufacturing hub, has been under some form of lockdown since late March, while much of Beijing is at a standstill as authorities scramble to roll out increasingly strict controls to avoid a city-wide lockdown.
The takeaway of what we’re seeing in China right now is hands down the worst set of numbers that we have seen in terms of economic performance since the initial downturn that took place in 2020,” Shehzad Qazi, managing director of China Beige Book, which surveys about 1,000 businesses in China each quarter, told Al Jazeera.
China Beige Book’s April results showed that revenue and margin growth had fallen across China’s manufacturing, retail, and services sectors, with new hiring returning to early pandemic levels and borrowing sharply down.
None of this bodes well for Beijing’s ambitious target of 5.5 percent gross domestic product (GDP) growth in 2022, said Qazi, as the pursuit of ‘zero COVID’ at all costs renders traditional economic tools, such as monetary stimulus, largely ineffective.Credit can only be put to use if you have normal economic activity, or you have businesses that are functioning,” Qazi said, adding that the CCP is “very limited in what it can do if you’re simultaneously forcing people to stay home”.
Far from adjusting the draconian pandemic strategy, authorities have in recent days tightened restrictions in Shanghai and Beijing. More than 373 million people across 45 cities were under some form of lockdown as of mid-April, according to an analysis by Japan’s Nomura Holdings.Qazi said he expects the economy to shrink 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, lockdowns could create uneven growth between northern and southern China as well as among industries, said Gary Ng, Asia-Pacific economist for Natixis, a French investment and corporate bank.
“Even though it may not enter into a recession as a whole country, if we look at certain provinces, I wouldn’t be surprised to see negative growth for some of the provinces with strict lockdowns,” Ng told Al Jazeera.While Shenzhen, a manufacturing hub neighbouring Hong Kong, exited its lockdown earlier this year relatively unscathed as factories continued to operate, Ng said exporting the “Shanghai model” elsewhere could have serious economic ramifications.
Tommy Wu, lead economist for Oxford Economics in Hong Kong, said one particularly concerning metric is the effect of lockdowns on logistics and supply chains, with truck flow data at about 30 percent of normal levels.Wu said he expects the disruptions to last through the second quarter of 2022 with a “ripple effect” on Asian and global supply chains and uneven growth across China’s economy.
