- While there was an uptick in private consumption in the first two months of the year – thanks to increased demand during the Chinese New Year festival and the Beijing 2022 Winter Olympics, such growth faltered in March due to widespread lockdowns across many provinces nationwide. Total retail sales shrank 3.5 percent in March 2022, the first contraction since the first wave of COVID-19 in 2020, falling across multiple product categories, luxury goods in particular. Meanwhile, online retail sales slumped to 3.0 percent YoY in March 2022, as opposed to growth of 12.3 percent YoY in January and February 2022.
• China’s manufacturing sector in key economic regions was affected by the spread of COVID-19, while production costs remain high. The producer price index (PPI), which gauges ex-factory prices, maintained high levels of 8.3-9.1percent YoY. On the other hand, the latest COVID-19 wave has swept through many important economic regions, putting pressure on China’s manufacturing sector. Moreover, the West’s heightened sanctions against Russia stemming from its conflict with Ukraine have placed additional pressure on Chinese factories via supply chain bottlenecks, especially scarcity of raw materials required in the production of semiconductors and vehicles.
• Investment in fixed assets is on the rise, particularly in the business and service sectors that have received government support. For instance, investment in the high-tech industry has benefited from China’s policy of technological self-reliance, while investment in health and education gains support from the country’s ‘common prosperity’ policy.
• International trade maintains steady growth despite impacts from COVID-19, which have caused substantial delays at several major ports and affected China’s export-oriented manufacturing sector in key economic regions. In 1Q22, China’s international trade grew 10.7 percent YTD and YoY, reaching CNY 9.42 trillion. At the same time, its export sector expanded 13.4 percent YTD and YoY, amounting to CNY 5.23 trillion. Meanwhile, its import sector saw a 7.5-percent increase YTD and YoY, totaling CNY 4.19 trillion.
• The latest wave of COVID-19 infections in China put significant pressure on employment. The surveyed unemployment rate in 31 major cities rose from 5.4 percent in February to 6.0 percent MoM in March 2022. Similarly, the national unemployment rate was at 5.8 percent in March 2022, up from 5.5 percent in the previous month – higher than the rate seen during the spread of the Delta variant between August and September 2021 (when unemployment stood in the range of 4.9 – 5.1 percent). The unemployment rate among new graduates aged 16-24 rose substantially to16.0 percent in March 2022 from 15.3 percent in February 2022.
While China’s economy showed signs of recovery in the first quarter of 2022, the country continues to face risk factors which could potentially slow its economic growth for the rest of the year. These factors include the global economic slowdown owing to the ongoing Russo-Ukrainian crisis, more debt defaults by property developers that are expected to prolong economic uncertainty, and the Omicron-fueled COVID-19 outbreak which has put greater pressure on China’s zero-COVID policy. If the latest wave hits even more provinces, any resulting additional lockdown measures may stall the growth of China’s economy over the remainder of 2022, delaying the recovery of domestic consumption and generating logistics woes for exporters. Based on the present uncertainties in China, its economic growth is projected to be in the range of 4.4-4.8 percent YoY, mainly supported by the Chinese government’s stimulus packages, investment from both the public and private sectors, and ongoing export growth. Regardless, close attention should be paid to the COVID-19 situation in China and the Chinese government’s approach to successfully implement its zero-COVID policy over the coming period.