China’s economic growth accelerated in the first quarter of the year to 4.8%, official data showed on Monday, but the government warned of ‘significant challenges’ ahead as massive lockdowns of Covid-19 were starting to bite.
The world’s second-largest economy faltered in the second half of last year with a housing slump and regulatory clampdowns, dragging down growth.
But it beat expectations in the first three months of 2022, rising 4.8% year on year, the National Bureau of Statistics (NBS) said, as Lunar New Year spending and factory output growth cajoling.
The coming weeks, however, look treacherous for the economy with Beijing’s relentless approach to outbreaks clogging supply chains and locking down tens of millions of people – including in economic powerhouses Shanghai and Shenzhen as well. than in the grain basket in northeast Jilin.
Virus restrictions in March have already weighed on retail sales as consumers avoided shopping and pushed up unemployment.
“With the domestic and international environment becoming increasingly complicated and uncertain, economic development is facing significant difficulties and challenges,” BES spokesperson Fu Linghui said Monday.
The rebound from the pandemic — along with sanctions weighing on the Russian economy — is raising the bar for authorities to meet Beijing’s annual growth target of around 5.5%.
The goal comes in a pivotal political year for President Xi Jinping, who is eyeing another term in office at the Party Congress to be held this fall.
The current virus outbreak is the worst since the peak of the first wave that emerged in Wuhan in late 2019, and the economy is beginning to weaken.
Industrial production growth slowed to 5.0% in March, NBS data showed, down from the January-February period.
Meanwhile, retail sales fell 3.5% and the urban unemployment rate hit a 22-month high of 5.8% last month.
“March activity data suggests that the Chinese economy has slowed, particularly household consumption,” Tommy Wu, chief China economist at Oxford Economics, said in a note.
– ‘The worst to come’ –
The Chinese government is trying to strike a balance between “minimizing disruption and controlling the latest wave of Covid infections”, Wu said, but he warned of a slowdown in economic activity in May or August. -of the.
Last week, automakers including XPeng and Volkswagen warned of serious disruptions to supply chains and possibly even a complete halt to production if the lockdown of Shanghai’s 25 million people persists.
Already, goods are piling up at the world’s busiest container port in Shanghai, prompting shipping giant Maersk to say it will stop accepting new refrigerated container bookings in the city.
“Further impacts from the shutdowns are imminent,” said Iris Pang, chief economist for Greater China at ING.
As Shanghai struggles to contain an outbreak that has seen tens of thousands of daily cases, Pang said other cities could try to replicate Shenzhen’s success by reopening quickly using strict measures with just a few patients. Covid.
The southern tech powerhouse was in total lockdown for nearly a week in March, but has since eased restrictions.
Julian Evans-Pritchard of Capital Economics warned that “the worst is yet to come”.
NBS’s Fu warned on Monday of high commodity prices, with the Russian-Ukrainian conflict leading to lower availability of raw materials such as corn and wheat.
Although China’s central bank announced a reserve rate cut, reducing the amount of cash banks must hold to support small businesses, experts say officials were taking a restrained approach to the stimulus.
But economists expect officials to eventually release a growth figure in line with official targets, amid doubts the figures could be manipulated for political reasons.
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