China’s economic angst deepens as lockdowns drag on

HONG KONG – China’s economy plunged deeper into a Covid-19-induced doldrums last month, raising questions about whether Beijing’s planned stimulus measures can prevent a prolonged downturn.

Consumer spending and factory output fell in April, while growth in infrastructure investment – which Beijing relies on to support growth this year – has slowed sharply, China’s National Bureau of Statistics said on Monday.

Meanwhile, China’s top unemployment rate rose to 6.1%, a two-year high, further evidence of the economic damage unleashed by the country’s toughest pandemic containment measures in more than two years.

While activity could resume if lockdowns are finally lifted, the damage from China’s commitment to ending Covid outbreaks is rippling through the economy and persisting. The question now is whether policymakers in the world’s second-largest economy will be able to soften the blow with fiscal and monetary policy tools.

China’s stimulus measures since the pandemic first broke out have focused on the supply side. Beijing’s reluctance to support families directly and its continued Covid restrictions have undermined the power of consumer demand to boost the economy, economists say.

Infrastructure spending, another favorite tool of Beijing policymakers that leader Xi Jinping has touted in recent weeks, may not work as well as it did in the past, in part due to current debt levels, said Stephen Roach, an economist and professor at Yale University. .

“[China] is facing some extraordinary headwinds that I don’t think its leadership is responding effectively to,” said Roach, former president of Morgan Stanley Asia.

The hardest hit sector of the Chinese economy, according to Monday’s data, was consumer spending. Retail sales in April were down 11.1% from a year earlier, the second consecutive monthly decline and the biggest contraction since March 2020.

In Shanghai, the city-wide lockdown meant no cars were sold last month, the Shanghai Auto Sales Association said on Monday.

Vegetable shoppers in Beijing, where fears of the lockdown have spurred panic buying episodes in recent weeks.


Li Xin/Zuma press

Covid-19 restrictions can also be felt in China’s manufacturing sector, where difficulties in putting workers on the factory floor, combined with waning overseas demand for Chinese goods, have hampered production and disrupted supply chains.

Industrial production in April fell 2.9% year-on-year, after a 5% gain in March. Production in the automotive sector fell 43.5% by volume as Covid swept through major production hubs in Shanghai and the surrounding northeast Jilin province, overcoming the efforts of manufacturers such as Tesla. Inc.

—whose Shanghai factory is the largest in the world—keep operations going with workers living on site.

Year-on-year growth in fixed asset investment, including infrastructure and real estate projects, slowed to 6.8% in the first four months of the year from 9.3% in the first quarter.

The surveyed urban unemployment rate, China’s leading measure of unemployment, surpassed the official target of 5.5% for the second month in a row in April, rising to 6.1% – the highest since February 2020 at 6.2%. Unemployment among the ages of 16 to 24 rose to 18.2%, the highest level since before the pandemic.

Fu Linghui, an official with China’s statistics bureau, said on Monday that the challenges facing the economy “have exceeded expectations”, although he expressed optimism that the difficulties will prove to be short-term.

On Monday, Citigroup cut its annual GDP growth forecast for the second quarter from 4.7% to 1.7%, and its full-year forecast from 5.1% to 4.2%.

As the outlook deteriorates, several prominent Chinese economists and academics, speaking at a forum in Beijing on Saturday, called for a more aggressive policy response.

“We’ve reached a point where we must use policies to save the economy at all costs,” said Huang Yiping, an economics professor at Peking University and a former central bank adviser, according to an official transcript.

Zhaopeng Xing, senior China strategist at investment bank ANZ, said China’s economy faces two challenges: the space for monetary easing is narrowing and business and consumer sentiment is deteriorating. A quick recovery similar to the one that followed the 2020 Wuhan lockdown is “almost impossible,” he said, given the higher transmissibility of the Omicron variant of the coronavirus.

Despite the censorship, videos shared online show growing despair and anger over the prolonged Covid-19 lockdowns in China’s economic capital Shanghai, where authorities are trying to address issues such as food shortages while bending strict pandemic policy. from the country. Photo composition: Emily Siu

The worsening economic outlook was not enough to prompt China’s central bank to cut its lending rates on Monday, as many economists had hoped. Despite moderate consumer inflation, economists say there is limited room for monetary easing as interest rates rise due to Federal Reserve concerns about capital outflows from China.

The People’s Bank of China, however, allowed banks to lower mortgage rates for first-time homebuyers on Sunday, in a move to prop up the slumping housing sector. Many economists, however, are skeptical that such measures could reverse a year-old government-induced spiral.

New home starts in April and home sales by value are down 44% and 47% respectively from a year earlier, worse than the fall in March, official Chinese data released on Monday showed.

The biggest challenge facing Beijing, economists say, is stimulating demand, even as businesses and consumers become more pessimistic — and top Chinese leaders reaffirm their insistence on ending all Covid infections.

Reflecting diminishing investment appetite, medium to long-term corporate loan growth decelerated sharply in April from March. Credit to total households, however, declined by 1.7%, due to the contraction in demand for new mortgages and consumer debt.

In contrast to their counterparts in most developed economies, including the US, policymakers in China since the beginning of the pandemic have avoided handing out cash or beefing up unemployment benefits to households. Instead, Beijing said it would funnel cheaper loans to businesses and offer up to 2.5 trillion yuan, equivalent to $368 billion, in tax refunds to businesses and entrepreneurs this year.

“The real weakness is on the demand side, but almost all the economic measures implemented are supply-side measures,” said Michael Pettis, a professor of finance at Peking University.

Shen Jianguang, chief economist at, questioned the effectiveness of existing policy responses and urged the government to hand out consumer vouchers to boost demand.

“Few companies will benefit from tax cuts if their revenue and profit growth suffers sharply,” he told the Peking University forum on Saturday.

write to Stella Yifan Xie at [email protected]

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