The World Bank modified its forecast for China’s economic growth in 2022. In April, the financial entity established a GDP growth of 5% annually. However, the consequences of the “zero-COVID” policy and the real estate market crisis reduced the expected growth rate to 2.8%.
Economic experts and analysts expected a higher growth for its economy in 2022. However, despite some positive indicators reflecting a moderate recovery, China has failed to achieve its targets.
Profit returns in industrial sectors also failed to meet projections from earlier this year. They declined faster than expected from January to August. According to the Asian country’s National Bureau of Statistics, the drop in profitability is 2.1% in the seven months of 2022. That wasn’t helped by several industrial conglomerates being affected by the “zero-COVID” policy and having to suspend all activities.
From January to August of this year, 25 of the 41 leading industrial sectors suffered a drop in revenue. Growth in the mining sector slowed by 88.1% year-on-year, and the manufacturing sector showed a 13.4% drop, accentuating the decline recorded in July.
Some indicators show a relatively moderate recovery in retail sales, which increased by 5.4% year-on-year in August, and automobile sales with 15.9% year-on-year growth. Tax cuts and increased subsidies to the auto industry drove growth.
“China will accelerate the implementation of demand expansion policies and promote a sustainable and stable recovery of the industrial economy,” said Zhu Hong, chief statistician at the National Bureau of Statistics.
Some analysts are not optimistic about the Chinese economy in the short term. “The economic recovery faces more uncertainties as momentum was disrupted by a number of unexpected and external factors, such as extremely hot weather, regional energy constraints and COVID outbreaks,” said Bruce Pang, chief economist at Jones Lang Lasalle.
Nomura, an international financial services firm based in Japan, commented that “the outlook for next year looks unusually unclear, although we are already at the end of the third quarter. … Beijing continues to fire on all cylinders to stamp out the coronavirus and has yet to publish a clear roadmap for exiting its ‘zero-COVID’ strategy,'” it added.
U.S. multinational financial firm Morgan Stanley stressed the importance and urgency of changing and restructuring the Chinese regime’s “zero-COVID” policy to counter the effects on the Chinese economy. “Weakening exports and the property market mean that the remaining source of support for growth is consumption, in our view. To unleash it, a change in China’s COVID management approach is needed,” Morgan Stanley said in a research paper.
“We expect policymakers to take significant steps in the coming months that will enable reopening from spring 2023,” the multinational said.
‘China’s economy stabilized’
Chinese Premier Li Keqiang said that “the country’s economy in general stabilized” and that the last quarter of the year will define the financial results.
In a meeting with senior Party leaders on September 28, Li Keqiang acknowledged that the first months of the year experienced stagnation caused by “unexpected factors.” He noted that the Chinese state must continue to provide subsidies, refinance loans, ensure logistics to maintain the supply chain, and other measures.
Severe heat waves in some provinces also caused power shortages, resulting in energy rationing measures leading to several days of closed factories, businesses, and enterprises.
At the end of August, the regime implemented more economic aid packages to reactivate the economy. In mid-September, Li Keqiang extended a tax cut for small businesses and additional subsidies of over $28 billion (200 billion yuan) for manufacturing and service industries.
Will the ‘zero-COVID’ policy change with the upcoming 20th Congress?
With the upcoming 20th Party Congress to be held in October, several China experts and analysts are wondering what will happen to the “zero-COVID” policy, which is responsible for much of the country’s economic stagnation.
China Beige Book CEO Shehzad Qazi commented that Xi Jinping would continue the policy. “Segments of the market predict the end of “zero-COVID” after the party congress,” Qazi said.
“In fact, it is more likely that the yardstick by which Xi will measure the success of health measures will continue to be health, not GDP. Until the health side improves one way or another, those betting on a quick end to “zero-COVID” are in for a nasty surprise.”
For Pierre Donnet, an experienced journalist and author of several books on China, the communist regime overcommitted itself to this policy. It is so stuck with it that it cannot back off. “How could Xi Jinping renounce now, without repudiating himself, and this dogma of “Covid zero” that he has made one of the pillars of his policy as he is preparing to celebrate his triumph at the 20th Party Congress?” he asked in a recent article.
“But the Chinese president obviously has no intention of changing his policy. On the contrary, this Thursday, May 5, during a meeting of the Party’s Politburo Standing Committee, he urged the Chinese people to “unhesitatingly adhere to the “zero-COVID” policy and to resolutely combat any word or act that distorts, questions, or denies the prevention of the epidemic,” the renowned French journalist added.
The Chinese leader has not indicated eliminating the policy, although control and prevention measures have caused serious problems for the Chinese economy. In addition, Chinese social discontent is increasing, and street protests calling for an end to the restrictions are becoming more frequent. Videos of Chinese citizens in despair over these measures go viral, and then the regime’s censorship removes them from social networks. With an unstable economy, shrinking incomes, and the constant disruptions to the daily lives of Chinese people by the “zero-COVID” policy, how much more can the Chinese people take?