MNI: China Faces Slow Recovery From Covid-19 Lockdowns

A near-term rebound will be slow in China even as Shanghai could soon emerge from nearly two months of lockdown after key data this week showed the economy was hit the hardest since the initial outbreak of Covid-19 pandemic two years ago, according to analysts.

On Monday, China’s National Bureau of Statistics (NBS) reported April retail sales, industrial output and unemployment data weakened more than expected.

Back in 2020, the economy was able to quickly rebound from the pandemic-caused slump, thanks to thriving exports and the rapid thawing of the real estate market. But these factors are no longer applicable to this year, wrote Wang Jingwen, senior analyst of China Minsheng Bank Research Institute in a WeChat blog post.

Second quarter GDP growth may bottom around 2.1%, taking the first half to about 3.5%, said Sheng Songcheng, a former director of the Statistics and Analysis Department of the People's Bank of China, at an economic forum. Though setting an annual growth target of "around 5.5%", China can still achieve 5% for 2022 should the growth reaches 5.5% in Q3 and 6% in Q4, he added.

LESS SPENDING

Retail sales slumped 11.1% y/y in April, hitting the lowest since March 2020. (See: MNI BRIEF: China April Sales, Output, Unemployment At 2-Yr Low)

Retail sales in Yangtze River Delta centered around Shanghai fell by more than 30% y/y in April. An NBS spokesperson said at the data release briefing that it was a short-term contraction, and pent-up consumer demand will rebound when normal life is restored. (See: MNI BRIEF: Shanghai's Return To Normal Life In June-Official)

However, the lost service consumption including catering and tourism are hard to make up, said Sheng. He added that Wuhan city took about a year to see consumption recover to pre-pandemic levels after months of lockdown.

Wang pointed to residents’ rising willingness to save instead of spending as they enter the third year of fighting against Covid-19. (See: MNI: China Needs Tax Cuts, Consumer Spending Coupons-Advisors)

Expectations are also weakening with the surveyed urban unemployment rate rising to 6.1% in April, only second to 6.2% in February 2020 since the data was tracked.

Property investment reversed the previous gain to fall 2.7% y/y to the lowest level since April 2020, as home sales, new property projects, as well as developers’ land purchases and funding in place further deteriorated. The property market is still in the process of bottoming out, said Wang. (See: MNI: Property Market Key To China's 2022 Growth Hopes-Advisors)

WEAKER INVESTMENT

Infrastructure investment, seen as the main growth driver this year, also slowed to a 6.5% y/y growth as local governments have shifted their focus and resources to epidemic control since April, affecting the launch of projects, said Wang. Sales of excavators fell by 61% y/y in April, and heavy trucks dropped by 77%, he added.

Industrial production unexpectedly fell 2.9% y/y in April, turning negative for the first time since March 2020, mainly due to factories being shuttered in the Yangtze River Delta and with supply chains in the auto-making industry disrupted.

But production constraints should soon ease following Shanghai’s gradual resumption of work, wrote Pan Helin, professor at Zhejiang University's International Business School on his WeChat account.

Some leading indicators such as power generation and consumption have shown positive changes, Wang noted, expecting improved economic performance in May. (See: MNI BRIEF: China's Top Mission To Boost Econ-Ex-PBOC Advisor)