BEIJING – China’s economy ended 2022 in a major slump as business and consumer spending plunged in December, with more disruption likely in the first few months of 2023 as Covid-19 infections surge across the country.
Official data released during the weekend showed the decline in manufacturing worsened in December, while activity in the services sector plunged the most since February 2020.
Separately, a private survey of businesses by China Beige Book International (CBBI) on Monday suggested that the economy contracted in the fourth quarter from a year earlier.
China’s abrupt ditching of strict Covid-19 controls in December fuelled a surge in infections in major cities, prompting people to stay home as they fell ill or feared becoming infected.
While the outbreak has likely peaked in cities such as Beijing, and economic activity is starting to rebound there, the virus is spreading fast across the country. A likely travel rush during the Chinese New Year holiday in late January could see cases spreading to rural areas, disrupting activity in the first quarter.
A private purchasing managers’ index survey on Tuesday confirmed the worsening decline in December. The Caixin manufacturing index – which covers mainly smaller, export-oriented businesses – dropped to 49 from 49.4 in November. Businesses were optimistic about the future, though, with confidence in the 12-month outlook climbing to a 10-month high.
“China’s growth prospects have been improving with the reopening accelerating,” said Mr Zhou Hao, chief economist at Guotai Junan International Holdings. “Overall, the darkest hour is gone.”
Economists expect a faster rebound once the infection wave peaks, with 2023 growth forecast to accelerate to 4.8 per cent from an estimated 3 per cent in 2022.
Travel was relatively muted over the recent three-day New Year’s holiday. The number of trips made was little changed from a year earlier, while tourism revenue was up 4 per cent compared with the same period in 2022, the Ministry of Culture and Tourism said. The figures were well below pre-pandemic levels, though – tourism revenue and the number of trips were 35.1 per cent and 42.8 per cent of 2019 levels respectively.
The lifting of the Covid-19 curbs came at a time when the economy was already quite weak. Pandemic restrictions had pushed consumer and business sentiment close to record lows, the property market is in a record slump and overseas appetite for Chinese goods has plummeted. Economists predict that China’s economy grew just 3 per cent in 2022. CBBI, a provider of independent data, said its surveys suggest that the economy grew only 2 per cent in 2022.
“With the ongoing Covid-19 tidal wave, investment sliding to a 10-quarter low, and new orders continuing to get battered, a meaningful first-quarter recovery is increasingly unrealistic,” said CBBI chief economist Derek Scissors.
Stock investors have turned more bullish for the new year amid bets that China’s reopening from Covid-19 curbs, while chaotic to begin with, will eventually boost the economy and corporate profits.
The Hang Seng China Enterprises Index, which tracks Chinese firms listed in Hong Kong, has surged 36 per cent in the past two months, beating a broader index of Asian equities by more than 20 percentage points. The index is expected to rebound in 2023 after capping a third straight year of declines – a record losing streak since its inception in 1994.
Policymakers have pledged more fiscal and monetary support to aid the economy’s recovery. The Ministry of Finance plans to expand fiscal spending appropriately in 2023 with the use of policy tools like the budget deficit. The central bank also vowed to support domestic demand and maintain credit growth.
China will likely cut interest rates and the reserve requirement ratio for banks in first-half 2023, while raising the fiscal deficit ratio for 2023, according to a survey of economists published in state media on Tuesday. BLOOMBERG
