BOFA, ANZ, China Beige Book on Covid, slowing growth
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The Chinese economy is “struggling” for now — but it’s “not in serious trouble,” according to Derek Scissors chief economist at research firm China Beige Book.
Scissors said that they are not considering outright contraction like China’s in 2020. Scissors spoke to CNBC’s SquawkBox Asia on Tuesday. This was in reference to the way that China suffered from its economic downturn. Chinese economy saw a 6.8% year-on-year contractionThe country was fighting Covid-19 in the first quarter.
On Monday, China posted better-than-expected GDP growthDespite retail sales slumping for March in the first quarter 2022 due to ongoing Covid lockdowns at the mainland,
“The Chinese economy is struggling but it’s … not in serious trouble,” Scissors said, adding that Beijing is likely prioritizing public health at the moment.
China’s view of Hong Kong was that Hong Kong did very well against Covid up to 2022. The elderly population would then be hit in Hong Kong. That is why they are much more concerned,” he stated. China sees the economy as not very good, but is able to bear it. A rural Covid wave wouldn’t be acceptable.
China outlook: Divided
Analysts differ on how the Chinese economy will fare as Beijing has continued to follow a zero-Covid strategy. This was a strategy which resulted in mass lockdowns following the discovery and treatment of infection.
It is a stark contrast with the strategy taken by other countries. They have relaxed many restrictions but shifted to a strategy “living together with Covid.”
Richard Yetsenga, ANZ’s chief economist, said that the Chinese economy is facing “pretty severe headwinds” during the current quarter. He stated this as the country continues to fight its worst Covid wave since 2020.
The chief economist of the Australian bank and head for research, however, stated that the Chinese economy will be in “reasonable” condition once this is done.
Yetsenga stated that there have been signs that the government has been alerted to the dangers and more discussion about policy support.
It is possible that 2022 will be more difficult than 2020, which we are concerned about.
Winnie Wu
Bank of America Securities: China Equity Strategy
China kept Wednesday’s benchmark loan rate at the same level. The one-year and five-year prime rates for loans and LPRs remained stable at 3.7% & 4.6% respectively. According to a Reuters survey, a majority of analysts and traders expected a decrease in the monthly loan prime rate.
Monday’s announcement by The People’s Bank of China was that it would increase its financial support to industries, businesses, and individuals affected by the pandemic.
The Chinese central bank was the target. unexpectedly held steady a key interest rateThis was despite the expectation of additional stimulus. On the same day, the PBOC also announced there would be a cut to the reserve requirement ratio on April 25 — the amount of funds banks need to hold in reserve.
Bank of America economists have reduced their projections for China’s GDP growth in 2022 from 4.8% down to 4.2%. Beijing set an official goal for 2022. GDP growth target of around 5.5% for 2022.
Winnie Wu (China equity strategist, Bank of America Securities) stated that “We are concerned that 2022 might be even more difficult than 2020 because of three reasons.”
First, current lockdowns are spread widely across the mainland — unlike in 2020, when restrictions were concentrated in one province, Wu said. This has caused “broad-based disruptions” to transportation and logistics.
She said that the uncertainty surrounding lockdowns in the third year of Covid had also impacted consumers’ willingness and ability to shop offline. In the long-term, business confidence has been affected by uncertainty about when and for how long.
China could see a slowdown in its export growth if supply chains within the country resume normalization and other countries reopen. Before the pandemic in China, India and Vietnam were able to benefit from companies opening up their doors there amid U.S.-China tensions.
Wu stated that “the supply chain will relocate, once it starts, it’ll be very difficult to reverse.”
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