Daily Management Review

Chinese Economic Growth In 2022 Was Among The Worst Ever As Post-Pandemic Called Into Question


Chinese Economic Growth In 2022 Was Among The Worst Ever As Post-Pandemic Called Into Question
China's economic growth in 2022 will be one of the slowest in nearly a half-century, thanks to strict COVID curbs and a property market slump in the fourth quarter, putting pressure on policymakers to announce more stimulus this year.
Although quarterly growth and some December indicators, such as retail sales, exceeded market expectations, analysts noted that the overall economic impulse in China remained weak, highlighting the challenges Beijing faces after abruptly lifting its "zero-COVID" policy last month.
GDP increased 2.9% year on year in October-December, according to National Bureau of Statistics (NBS) data released on Tuesday, slower than the 3.9% growth rate in the third quarter. The rate still outperformed the 0.4% increase in the second quarter and market expectations of a 1.8% increase.
The sudden relaxation of stringent anti-virus measures by Beijing has boosted expectations of an economic recovery this year, but it has also resulted in a sharp increase in COVID cases, which economists say may impede near-term growth. Because of the property slump and weak global demand, any recovery in growth will be heavily reliant on shell-shocked consumers.
"China's 2023 will be bumpy; not only will it have to navigate the threat of new COVID-19 waves, but the country's worsening residential property market and weak global demand for its exports will be significant brakes," Harry Murphy Cruise, economist at Moody's Analytics, said in a note.
GDP expanded 3.0% in 2022, falling short of the official target of "around 5.5%" and slowing sharply from 8.4% growth in 2021. Excluding the 2.2% growth after the initial COVID hit in 2020, it's the worst performance since 1976, the final year of the decade-long Cultural Revolution that wrecked the economy.
"Activity data in December surprised broadly to the upside, but remains weak, particularly across demand-side segments such as retail spending," Louise Loo, senior economist at Oxford Economics, said in a note.
"Data thus far supports our long-held view that China's reopening boost will be somewhat anemic at first, with consumer spending a key laggard in the early stages," Loo said.
According to one poll, growth will rebound to 4.9% in 2023 as Chinese leaders work to address two major drags on growth: the "zero-COVID" policy and a severe property sector downturn. Most economists anticipate that growth will accelerate in the second quarter.
A strong rebound in China could temper an expected global recession, but it could also cause more inflationary concerns globally, just as policymakers are beginning to get a handle on record price increases.
Following the Chinese data, Asian stocks fell, and the yuan fell to a one-week low.
GDP stalled in the fourth quarter, coming in at 0.0%, compared to 3.9% growth in July-September, highlighting underlying weakness in many sectors.
Following Beijing's lifting of COVID restrictions, businesses have experienced an increase in infections, implying a rocky recovery in the near term.
"The ongoing 'exit wave' on the back of China's faster-than-expected reopening has taken a heavy toll on economic activity in recent months, due to surging infections, a temporary labour shortage and supply chain disruptions," economists at Goldman Sachs said, noting the annual contractions in output of both steel product and cement in December.
Factory output increased 1.3% year on year in December, slowing from a 2.2% increase in November, while retail sales, a key indicator of consumption, fell 1.8% last month after falling 5.9% in November.
Official data showed that unemployment had decreased, despite the fact that manufacturing and service activity had been impacted by the increase in COVID infections. The nationwide survey-based unemployment rate fell to 5.5% in December, down from 5.7% in November.
China's top leaders have pledged to prioritize consumption expansion this year in order to support domestic demand and the overall economy, at a time when local exporters are struggling in the aftermath of global recession risks. This year, the central bank is also expected to gradually ease policy.
According to policymakers, China will likely aim for at least 5% economic growth in 2023 in order to keep unemployment under control.
China's property industry was one of the most significant drags on growth. Investment in the sector fell 10.0% year on year in 2022, the first drop since records began in 1999, and property sales fell the most since 1992, according to NBS data, indicating that government support measures have had little impact thus far.
In recent weeks, authorities have enacted a flurry of policies aimed at homebuyers and property developers in an effort to alleviate a long-running liquidity crunch that has harmed developers and delayed the completion of many housing projects.
Adding to the challenges facing the economy and the government, the NBS data showed that China's population fell in 2022 for the first time since 1961, a historic turn that is expected to mark the start of a long period of decline in its citizen numbers and see India overtake China as the world's most populous nation in 2023.
"The population will likely trend down from here in the coming years. This is very important, with implications for potential growth and domestic demand," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
"Going forward, demographics will be a headwind. Economic growth will have to depend more on productivity growth, which is driven by government policies."