China’s National Bureau of Statistics reported on Monday that consumer spending and factory output fell in April, while growth in infrastructure investment – which Beijing is counting on to boost growth this year – slowed sharply.
Meanwhile, China’s headline unemployment rate rose to a two-year high of 6.1%, further evidence of the economic damage caused by the country’s strictest epidemic containment measures in more than two years.
While activity may return if the lockdown is eventually lifted, China’s commitment to stamp out the Covid outbreak is hurting through the economy and sluggishness. The question now is whether policymakers in the world’s second largest economy will be able to cushion the blow with fiscal and monetary policy tools.
China’s stimulus measures have focused on the supply side since the outbreak of the pandemic. Economists say Beijing’s reluctance to support households directly and its ongoing COVID restrictions have sapped the power of consumer demand to boost the economy.
Stephen Roach, an economist and Yale University lecturer, said infrastructure spending, another favorite tool of Beijing’s policymakers, promoted by leader Xi Jinping in recent weeks, may not work as well as it used to. ,
,[China] Mr Roach, former president of Morgan Stanley Asia, said, “It is facing some extraordinary hurdles that I think its leadership is not responding to effectively.
According to Monday’s data, the hardest-hit sector of China’s economy was consumer spending. Retail sales in April were down 11.1% from a year ago, the second straight monthly decline and the biggest contraction since March 2020.
In Shanghai, a city-wide lockdown meant no cars were sold last month, the Shanghai Automobile Sales Association said on Monday.
Covid-19 restrictions can also be felt in China’s manufacturing sector, where workers struggle to get to factory floors, combined with softening overseas demand for Chinese goods, crippled production and disrupted supply chains.
Industrial production in April was down 2.9% from a year earlier, after rising 5% in March. Production in the automotive sector fell by a whopping 43.5% as Covid swept through major production centers in Shanghai and northeastern Jilin province, overshadowing efforts by manufacturers including Tesla Inc – whose Shanghai factory is the largest globally – Continue operations with workers remain on site.
Year-on-year growth in real estate investment, including infrastructure and real-estate projects, slowed to 6.8% for the first four months of the year from 9.3% for the first quarter.
The surveyed urban unemployment rate, China’s key measure of unemployment, surpassed the official 5.5% target for the second straight month in April, climbing to 6.1% – the highest since February 2020’s 6.2%. Unemployment rose to 18.2% for 16- to 24-year-olds, the highest level before the pandemic.
Fu Linghui, an official with China’s Bureau of Statistics, said on Monday that the challenges facing the economy were “exceeding expectations”, though he expressed optimism that difficulties would prove short-lived.
On Monday, Citigroup lowered its year-over-year GDP-growth forecast for the second quarter from 4.7% to 1.7%, and lowered its full-year forecast to 4.2% from 5.1%.
As the outlook deteriorates, several prominent Chinese economists and scholars, speaking at a forum in Beijing on Saturday, called for a more aggressive policy response.
“We have reached a point where we must use policies to protect the economy at all costs,” said Huang Yiping, Peking University economics professor and former central bank advisor, according to an official transcript.
Zhaopeng Jing, senior China strategist at investment bank ANZ, said China’s economy was facing two challenges: shrinking scope for monetary easing and worsening trade and consumer sentiment. A rapid rebound after Wuhan’s lockdown in 2020 is “almost impossible,” he said, given the high transmittance of the Omicron version of the coronavirus.
The deteriorating economic picture was not enough to prompt China’s central bank to cut its lending rates on Monday, as many economists had expected. Despite easing consumer inflation, economists say there is limited room for monetary easing, as rate increases fuel concerns about the Federal Reserve’s capital outflows from China.
However, the People’s Bank of China on Sunday allowed banks to cut mortgage rates for first-time home buyers to boost the plunging property sector. However, many economists are skeptical that such a move could reverse a government-induced spiral that is now a year old.
April’s new home openings and home sales by value were down 44% and 47%, respectively, from a year earlier, worse than March’s slide, official Chinese data released on Monday showed.
Economists say the big challenge facing Beijing is boosting demand, as businesses and consumers become more pessimistic – and senior Chinese leaders reaffirm their urgency to seal all Covid infections.
Growth in corporate mid-to-long-term loans slowed sharply in March to April, in reflection of easing investment appetite. Meanwhile, total home credit declined 1.7%, as demand for both new mortgages and consumer loans declined.
Unlike their counterparts in most developed economies, including the US, policymakers in China have refrained from cashing out households or offering unemployment benefits since the start of the pandemic. Instead, Beijing has said it will make cheaper loans to businesses and offer 2.5 trillion yuan, the equivalent of $368 billion in tax refunds, to companies and business owners this year.
“The real weakness is on the demand side, but almost all economic measures implemented are supply-side measures,” said Michael Pettis, a finance professor at Peking University.
JD.com chief economist Shen Jianguang questioned the effectiveness of current policy responses and called on the government to distribute consumption vouchers to boost demand.
“Some companies will benefit from tax cuts if their earnings and profits fall sharply,” he said at the Peking University Forum.
—Grace Zhu and Bingyan Wang contributed to this article.