Kevin Yao

BEIJING (Reuters – China’s slowing economic recovery will be difficult to achieve the extraordinary recovery it experienced from the initial depths of the pandemic two decades ago. As China’s export power erodes and its options for reviving investment and consumption dwindle.

According to analysts and policy experts, this means that China’s leadership may need to accept an economic growth rate of around 5% in the current year. This is below Beijing’s target of 5.5%. There are also prospects for a slower “U-shaped,” recovery than a fast “V-shaped”.

With no end in sight to China’s zero-COVID policy, investors worry a prolonged slowdown in the world’s second-largest economy could further weaken the global recovery and that worsening supply chain disruption could fan inflation risks.

That contrasts with 2020 when China’s economic performance was remarkably strong. This is thanks to both stimulus and surging imports. Locked-in international shoppers indulged in Chinese goods.

China’s economic cycle and COVID cycle are very different from other countries. A policy source spoke only under condition of anonymity to say that China had successfully contained the COVID epidemic back in 2020. They also experienced rapid production recovery and other benefits.

The outside world is choosing to be flat this time, which means that we are seeing more of a negative effect on China, as they increase policies that will impact external demand. This puts pressure on China’s foreign trading.

Before the widespread COVID curts in Shanghai, and other Chinese cities, economists from the private sector considered Beijing’s potential growth targets ambitious.

America, Europe, and the other large economies of the world have decided to accept the virus as they open new markets and depend on vaccines for fighting the pandemic.

China regards such policies as encouraging the inaction of deadly, highly infectious viruses. They are unpalatable politically.

DIFFERENT THIS TIME

China’s recovery from the pandemic slump in 2008 saw it rebound in 2020 and become the world’s largest economic power. However, Beijing had to cut its annual growth targets due to the COVID-19 earthquake.

President Xi Jinping, under the banners of the Communist Party declared victory over the pandemic. Senior officials praised the party’s ability “to turn crisis into opportunity” on the final day of 2020.

China’s early successes suggest that it is likely to continue with its zero COVID policy up until the last key party meeting at the end of this year.

However, unlike 2020, the U.S. Federal Reserve, and other central banks, are increasing interest rates to reduce runaway prices. This makes it difficult for the People’ Bank of China (PBOC) to adjust monetary policy because they fear capital outflows will cause local inflation and make it more expensive.

China’s consumers are tightening their belts due to increasing job loss and decreasing income. Policy insiders claim that the government continues to be reluctant to provide cash assistance similar to the ones offered in Europe and the United States. Some Chinese cities offer shopping vouchers.

They said that China is most likely to channel more money into infrastructure projects, however, it may not be enough for property spending to recover the lost ground.

Societe Generale’s economists wrote in a note, “Infrastructure should lead recovery, having received all-throated support by President Xi”

But infrastructure is not enough. A housing market recovery would be crucial for the entire economy’s turnaround, as consumption will likely see little to no recovery after the expiration of the zero COVID policy.

Slow Recovery

The latest economic data from April indicated that China’s production and consumption declined at a rate not seen since 2020 when the Wuhan pandemic broke out.

Fears of job loss have been heightened by China’s survey-based nationwide unemployment rate of 6.1%, which rose to April. This is the highest reading since February 2020. However, it’s well beyond the government’s target of 5.5% for 2022.

In April, export growth fell by 3.9%, which is the weakest since almost two-years.

Private-sector economists predict that China’s economy will shrink from last year’s first quarter, which was 4.8%.

Fu Linghui (a spokesperson for the National Bureau of Statistics) played down Monday’s possibility of a decline in the second quarter.

The weaker Yuan could also benefit the export industry, which has seen a drop of 6% against the dollar this year.

Zong Liang (chief researcher, state-owned Bank of China), stated that companies facing difficulties will benefit from appropriate yuan appreciation.

Citi analysts now predict that the economy will contract 1.7% during the second quarter, contrary to previous forecasts of a 4.7% increase.

Although the bank’s 2022 growth projection has been reduced to 4.2%, it still believes there is scope to stop a worsening slowdown in Beijing.

Citi analysts wrote in a note, “The worst might be over because the government looks at increasing its support.”

China has remaining policy options. To bring about growth, it is critical that real stimulus measures are implemented quickly and effectively at this time.