Growth in China rebounds, despite Covid tremors

Posted on Monday, April 18, 2022 at 08:34

China on Monday reported a rebound in its first-quarter growth of 4.8% in one year, despite “significant challenges” to the economy at a time when containment of Shanghai severely punishes activity.

Despite caution, China’s official GDP figure remains under heavy scrutiny due to the country’s weight in the global economy.

This increase was widely expected. A group of analysts polled by AFP had expected a more moderate recovery (4.3%). In the fourth quarter of 2021, the country’s GDP grew by 4% year-on-year.

A senior economic official admitted at a press conference that the Chinese economy faces “big challenges”. From one quarter to the next, the growth of the Asian giant rose by only 1.3%, which is lower than the average for the October-December period (1.6%).

China, which has largely controlled Covid-19 for two years, has been facing its worst outbreak since last month.

Tens of millions of Chinese were detained in March in the technology city of Shenzhen (south), and are still trapped in the northeast of the country, the cradle of the auto industry, as well as in Shanghai, the country’s economic capital.

Unlike many countries that choose to live with the virus and lift restrictions, China continues to pursue a zero Covid policy.

– red consumption –

These measures, which seriously damage the transportation and supply chains, have led to the closure of many businesses.

These difficulties came on top of those that have already affected the Chinese economy in recent months: stagnating consumption, tightening regulation in many sectors such as real estate and technology, and uncertainties associated with Ukraine.

In March, retail sales, the main indicator of household spending, fell 3.5% on an annual basis, their biggest decline since April 2020, when the Asian giant was just beginning to emerge from the first wave of the crisis.

Analyst Rajiv Biswas, of IHS Markit (S&P Global) confirmed to AFP that the restrictions imposed in March “severely affected” consumer spending, particularly in stores and restaurants.

Biswas warned that the consequences of booking Shanghai in April would be “significant” on consumption, arguing that its residents have the highest spendable income in China.

For its part, industrial production increased by only 5% over the past month, compared to 7.5% during the first two months of the year.

The unemployment rate rose to 5.8% in March from 5.5% in January and February.

After being specifically monitored by the authorities and calculated for urban residents only, the unemployment rate reached an absolute record of 6.2% in February 2020, at the height of the epidemic, before it receded.

As for fixed capital investment, its growth slowed over the first three months of the year to 9.3% from 12.2% at the end of December, according to the Swiss National Bank.

– ‘Headwind’ –

notes analyst Julian Evans-Pritchard of Capital Economics, who says he is “surprised” at the growth resilience.

In any case, the April numbers will be bad due to the logistical disruptions, which will affect GDP in the second quarter, he said.

Beijing has set itself a growth target of “about 5.5%” this year, which for China will be the weakest rate since the beginning of the 1990s, with the exception of 2020, which was marked by the first wave of Covid.

Given the context, that goal now appears “out of reach”, said economist Larry Ho, director of Australian assets Macquarie.

“China is facing several headwinds, including Covid-related shutdowns and (slowdown in) the real estate sector,” Hu noted.

Evergrande promoter setbacks, on the verge of bankruptcy, have taken over the entire sector.

Real estate and construction, which accounts for more than a quarter of the country’s gross domestic product, played a major role in 2020 in the post-pandemic recovery.

The current situation contrasts sharply with the situation last year: China then saw a jump in its growth of 18.3% in the first quarter, due to the catch-up effect of 2020, when the Covid-19 virus crippled the economy.

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