With ‘Zero Covid’ Behind It, China’s Economy Starts to Recover
China’s consumers, while wary of big-ticket purchases like cars or apartments, are spending again. Many factories are still running below capacity, but exports are strengthening. Even as construction of new housing is slowing, investment in infrastructure and manufacturing is robust.
Despite lingering pockets of economic weakness, China is recovering faster than expected after the government in early December abruptly lifted “zero Covid” measures like shutdowns and mass testing that had effectively choked growth.
The economy expanded 4.5 percent from January through March compared with the same months in 2022, the country’s National Bureau of Statistics said Tuesday. The rise was driven in large part by consumers: Retail sales, a barometer of spending, jumped 10.6 percent in March from a year earlier despite a slump in car sales.
The stakes for the rest of the world are high after China experienced one of its worst economic performances in years in 2022. For most of the past two decades, China has been the single largest engine of global growth. Despite simmering tensions with the United States, and growing disagreements with Europe, China remains highly interdependent with both of their economies at an uneasy time. The International Monetary Fund warned last week that the world faces an increasing risk of a painful slowdown this year as central bankers in the West raise interest rates and banks stumble.
Tuesday’s report on gross domestic product indicates that China, the world’s second-largest economy, is coming back to life.
“The quarterly growth is beginning to show a hoped-for healthy rebound,” said Louise Loo, an economist specializing in China in the Singapore office of Oxford Economics. “A very decent 4.5 percent year-over-year growth pace at this early stage of the reopening also provides the space for authorities to provide support to weaker segments of the economy as needed.”
China has taken steps to stimulate growth. The government is investing in high-speed rail lines, highways and bridges, money that makes travel easier and creates jobs. The central bank, the People’s Bank of China, told commercial banks last month that they could hold slightly smaller reserves against possible losses, freeing them to lend more.
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The growth in the first months of this year was a considerable improvement from the 2.9 percent pace in the final quarter of last year, when a wave of illness swept across the country after pandemic controls were lifted, and is close to the 5 percent target Beijing has set for 2023.
Spending has been strongest for services like travel and meals. Hotels in Beijing and Shanghai that turned off elevators last year and often had a single diner in 200-seat restaurants now find themselves with lines of people waiting for a table.
At the same time, China faces serious headwinds including a widening gap in government budgets, as revenue lags and spending rises. And a slow-motion housing crash remains a drag on the economy. Construction of new homes, offices and stores shrank 5.8 percent in the first quarter compared to the same period last year.
The local economy in Suzhou, a city on the Yangtze River near Shanghai, shows many of the national trends. Consumers and companies are spending. But there are considerable differences from neighborhood to neighborhood and even from business to business.
Consumer spending picks up, but unevenly.
At a street market in Suzhou, a butcher named Jiang Yongming stood behind a table covered in slabs of raw pork and complained about the lingering frugality of his neighborhood’s residents. People buying meat ask him to chop a large filet into two or three pieces and then buy only one of them, he said.
Liu Zhongyou, a catfish and clams vendor at a street market in Suzhou, has had a very different experience. He lost all his sales for a month last year when nearby restaurants were shut because of pandemic restrictions, but now the same eateries are placing big orders.
“We were losing money during the epidemic — we had no customers,” Mr. Liu said. “It’s good now.”
The disparate experiences of two small businesses in the same market reflect China’s recovery — strengthening but unevenly.
Retail sales climbed only 3.5 percent in January and February compared with the same months last year. So the big increase in March represented the first sign of a robust recovery. But the jump was in comparison to an actual decline in March 2022, when Covid cases were rising, leading to the start of Shanghai’s two-month lockdown.
And some sectors have not recovered at all from the pandemic. A third of movie theaters went under. Box office revenues were down 55 percent in March compared with four years ago, according to Maoyan Entertainment, an online ticketing company in Beijing that tracks the industry.
Even as China’s economy begins revving up, there is little sign of inflation. Unlike the West, China refrained from sending pandemic checks and coupons to households. So people have limited ability to bid up prices for goods. Consumer prices were only 0.7 percent higher in March compared to last year, and the prices producers charge their customers for industrial goods actually fell.
“Inadequate domestic demand remains prominent, and the foundation for economic recovery is not solid yet,” said Fu Linghui, an official at the statistics bureau.
The incomes of millions of Chinese were severely depressed during the pandemic, and remain weak. Unemployment among 16- to 24-year-olds increased in March, to 19.6 percent, from 18.1 percent in February. In a positive sign, unemployment among residents aged 25 to 59 fell to 4.3 percent in March, from 4.8 percent in February.
Factories catch up on orders.
Next to one of Suzhou’s iconic canals lined with weeping willows sits a repair shop for tabletop electric motors. The shop supplies the many small workshops nearby that make nails and screws for the city’s huge industrial firms.
The proprietor, who gave his family name, Guo, said that some businesses like his had failed during the pandemic but that the survivors were back. “It is basically much better than before, and the ones that have not closed down have basically recovered,” Mr. Guo said.
Industrial production — the output of factories, mines and power plants — rose 3.9 percent in March over last year, an improvement from 2.4 percent in January and February. But industrial growth was still anemic by China’s standards. A sharp slowdown in the car industry was one of the main culprits.
Car sales fell 13.4 percent in the first quarter. At the end of December, China let subsidies expire for electric cars and reinstated a sales tax on gasoline-powered cars that had been suspended.
Overall, exports are recovering and jumped 14.8 percent in March. Factories are catching up on a backlog of orders that had accumulated during “zero Covid” lockdowns.
China is building rail lines, not apartments.
Investment in apartment buildings, roads, factories and other so-called fixed assets has long been a mainstay of the Chinese economy. Fixed-asset investment is growing — 5.1 percent in the first quarter compared with last year. But investment is not following a pattern welcomed by Beijing.
Government spending on new rail lines, roads and other infrastructure rose 8.8 percent in the first quarter compared to last year. Manufacturing investment was up 7 percent.
Few sectors illustrate the challenges still facing China more than real estate.
After running out of cash over the past two years and defaulting on dozens of overseas bonds, housing developers are starting very few new projects, although prices are starting to stabilize. Stock market investors remain wary: The share price of one big developer, Sunac China Holdings, tumbled 59 percent last week when it resumed trading after being suspended for a year.
Even people who take delivery of new apartments are often reluctant to spend money on painting and furnishing. At a paint store down the street from Mr. Guo’s electric repair shop, customers have disappeared.
“We have no business now,” said the store owner, who gave her family name, Lu. “Nobody comes.”
Li You contributed research.