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The Chinese economy grows 3% in 2022, one of the worst data in almost half a century


The sudden turn from the zero covid policy to the total opening fails to save a 2022 marked by disruptions, but opens the door to a rebound in 2023

China's economy grew a meager 3% in 2022, a year marked by lockdowns and disruptions stemming from the strict zero-covid policy, which the government abruptly ended in December after a wave of social protests.

It is the worst growth data for the Asian giant since the first year of the coronavirus in 2020, when the GDP of the second largest economy on the planet increased by just 2.2%.

And to find another year of less dynamism, we must go back to that isolated China of 1976, almost half a century ago, when the turbulent decade of the Cultural Revolution ended and the historic leader Mao Zedong died.

The dark panorama of the end of 2022, with a tsunami of covid infections and tens of thousands of deaths after the relaxation of sanitary measures,

Far away are those double-digit rates of hyperdevelopment of the Asian locomotive of the first decade of the 2000s, 8.4% growth in 2021, and far away is also the less ambitious target of 5.5% that had been set in March the Chinese Executive for 2022. The scourge of the omicron variant in recent months has ended up short-circuiting an economy that was already suffering from structural problems, such as the slowdown of the immense real estate sector and the low intensity of domestic consumption.

The hard GDP data also coincides with the announcement, also this Tuesday, of the fall in China's population for the first time in six decades.

The change in trend is a consequence of the historical collapse of the birth rate and an aging population.

And it announces changes that will have profound consequences in what, for the moment, continues to be the most populous country on the planet, an immense source of labor and consumers globally.

The last Chinese year has been akin to a roller coaster.

The economy took the worst blow in the spring, when the authorities kept the 25 million inhabitants of Shanghai, the financial heart of Shanghai, confined for more than two months, and growth in that second quarter was strangled until it was practically moribund, at 0 ,4%.

The country continued to stumble in the third and fourth quarters, growing at 3.9% and 2.9% year-on-year respectively, according to data from the National Statistics Office.

The country has narrowly dodged negative territory in the fourth quarter, remaining on hold with 0% growth compared to the previous quarter, but it avoids stepping on the area of ​​red numbers that it already reached -in quarterly terms- in the second quarter of 2022, and also at the beginning of the pandemic.

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China's population shrinks for first time in more than 60 years

The closures of megacities and massive covid tests as soon as a small outbreak was detected continued to set the pace since the bolt in Shanghai.

The confinements were replicated throughout the country, arousing weariness in different sectors.

A wave of protests in late November, shortly after Xi Jinping secured a third term as head of the Communist Party, put the government on guard.

He responded with a heavy hand and arrests, first.

But he immediately decided to eliminate the rigid health policy that had governed the lives of its citizens for almost three years.

The demonstrations were an earthquake that was felt in the squares of the cities, the university campuses and also among the employees affected by the excess of zeal of rigorous policies.

The economy can be read as one of its main causes.

Migrant workers, the country's cheap labor base, staged violent clashes at the world's largest iPhone factory, in Zhengzhou, and in Guangzhou, one of the country's industrial vectors.

The social thermometer demanded changes, which arrived in December, ahead of schedule: many analysts estimated that these would come in March, when the country's new government will be shaped and Xi is expected to be re-elected president for a third term.

On January 8, Beijing finally reopened its borders after more than a thousand days practically sealed to the world, yet another gesture of its newly launched openness.

On the back of this new phase, some provinces have been preparing their forecasts for 2023, an indicator of this expected rebound effect: Jiangxi expects to grow at 7%, Sichuan at 6% and Shanghai has recommended setting this year's GDP growth at above 5.5%.

Forecasts can always end up swept away by reality.

It is true that optimism is beginning to be felt in China in a very epidermal way: in the traffic jams that have returned to the arteries of Beijing, in the restaurants where the echo of the cough of those who have already passed the virus resounds, in the millions of trips planned for Chinese New Year, which falls on January 22.

The long hand of covid is likely to continue to partially spoil the party.

But analysts don't think it will last forever.

"Although only a small sample, the growth targets for Jiangxi, Sichuan and Shanghai show that provincial governments expect growth to be strong this year," Trivium China analysts said in a bulletin.

"In general, we share your optimism," they add, despite "the headwinds of the covid" and the battered real estate sector.

Investment in properties has fallen 10% in 2022, in what represents the first decrease since there are records in 1999, and sales of real estate assets have suffered the worst collapse since 1992, an example of how some of the measures launched by the Government recently have not yet borne fruit.

Anne Stevenson-Yang, an analyst at J Capital Research, a firm specializing in China, believes that housing – close to a third of GDP – will continue to be one of the failures in 2023. "The central problem of the Chinese economy is property," account in a telephone interview prior to the publication of the GDP data.

On that front, she adds, there is hardly anything new;

if anything, she says, a financial sector that has hoarded even more "bad debt."

Stevenson-Yang does not believe that construction or land sales will be restarted or new projects will be launched.

At most, she concedes, there will be a cycle in which those that are unfinished are completed.

The Chinese government has reiterated in recent months that it intends to start the economic locomotive again and that it will pamper, among other things, this sector.

At the recent Central Economic Work Conference, held a week after the anti-pandemic turnaround, Beijing acknowledged that it should "better coordinate epidemic prevention and control with economic and social development," and called for the need to "avoid and dissipate [...] important economic and financial risks" and promote "the development of the real estate market, guarantee the timely delivery of pre-sale housing and satisfy the reasonable demand for financing in the sector".

Many of those who have struggled to stay afloat for nearly three years have high hopes for the coming months.

“2022 has not been a good year in any sense.

But in 2023 we will see a big jump in the Chinese economy if the international climate remains relatively stable, ”says a Chinese businessman in the tourism sector, a member of the Communist Party, who prefers to remain anonymous.

"The Chinese have been waiting for three years to spend and enjoy life," adds an investor from the country who is confident in the return of consumption.

He believes that there will be several factors that will guide growth, such as Beijing's boost to the private sector – “and not just state-owned businesses” – as well as “a more tempered geopolitical landscape” in the first part of 2023. Tensions will continue , he adds, but not like in the last couple of years.

"All big countries need to take a moment to breathe."

Source: elparis

All business articles on 2023-01-18

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