ANALYSIS-China faces uphill battle to repeat 2020 miracle as exports falter


(Repeats for Asian morning readership. No text changes.)

By Kevin Yao

BEIJING, May 17 (Reuters) – China’s slowing economy will struggle to stage the kind of stunning recovery it has achieved since the early lows of the pandemic two years ago as its formidable export machine wavers and the options for reviving investment and consumption are diminishing.

Analysts and political insiders say this means China’s leaders may have to quietly accept economic growth of around 5% for this year, below Beijing’s current target of “around” 5.5%, and prospects for a slower “U” shaped recovery, rather than a rapid “V” shaped one.

With China’s zero-COVID policy nowhere in sight, investors fear a prolonged slowdown in the world’s second-largest economy could further weaken the global recovery and worsening supply chain disruption could heightens the risk of inflation.

This outlook contrasts sharply with 2020, when China’s economy recovered from a deep pandemic-induced contraction, thanks to a combination of stimulus measures and an increase in exports as locked-in global buyers splurged. on Chinese products.

“China’s economic and COVID cycles are different from those of other countries. In 2020, China effectively controlled the COVID epidemic and achieved a rapid recovery in production and reaped the benefits,” said a woman. political source who spoke on condition of anonymity.

“This time around, the outside world chooses to stay flat, and we see a more negative impact on China as they tighten policies that will affect external demand, putting pressure on China’s foreign trade.”

Even before widespread COVID restrictions in Shanghai and other major Chinese cities affected the economy, private sector economists viewed Beijing’s growth target as ambitious.

The United States, Europe and other major economies have chosen to “live with the virus” as they reopen and rely on vaccines to fight the pandemic.

In China, such policies are seen as encouraging inaction against a deadly and highly infectious virus, and as such are politically unpalatable.

DIFFERENT THIS TIME

In 2020, China emerged from its pandemic crisis to become the only major economy to grow in a turbulent year, in which the shock of COVID-19 forced Beijing to abandon its annual growth target.

On the last day of 2020, President Xi Jinping declared victory over the pandemic under the banner of the Communist Party while senior officials touted the ruling party’s ability to “turn crisis into opportunity”.

This early success means China is now likely to stick to its zero COVID policy until at least one key party meeting towards the end of the year.

Unlike in 2020, however, the US Federal Reserve and other central banks are raising interest rates to curb runaway prices, making it harder for the People’s Bank of China to ease monetary policy due to concerns about capital outflows and local inflation.

Chinese consumers are tightening their belts amid rising job losses and falling incomes, and the government remains reluctant to pay out cash assistance similar to that used in the United States and Europe, insiders say politics. Some Chinese cities have offered vouchers to residents.

Funneling more money into expensive infrastructure projects is China’s most viable move, but may not be enough to fill the void as property spending declines, they said.

“Infrastructure, which received full support from President Xi in April, is expected to lead the recovery,” Societe Generale economists said in a note.

“But infrastructure alone will not be enough, and a rebound in the housing market would be essential for the wider economy to recover, given that consumption is unlikely to see a real recovery before the end. of the zero-COVID policy.”

SLOW RECOVERY

This week’s economic data for April showed China’s factory consumption and production fell at a rate not seen since the start of 2020, when the outbreak in Wuhan became a pandemic.

The widespread slowdown has fueled fears of further job losses, with the national survey-based unemployment rate hitting 6.1% in April, the highest since February 2020 and well above the government’s 2022 target of less than 5.5%.

Export growth fell to 3.9% in April, the weakest in nearly two years, as COVID-19 curbs factory closures.

Many private sector economists expect China’s economy to contract in the second quarter from a year earlier, down from 4.8% growth in the first quarter.

Fu Linghui, spokesman for the National Bureau of Statistics, on Monday downplayed the possibility of a drop in the second quarter.

Likewise, the export sector could benefit from a weaker yuan, which has fallen around 6% against the dollar. so far this year.

“As companies face difficulties, an appropriate depreciation of the yuan will help boost their competitiveness,” Zong Liang, chief researcher at the state-owned Bank of China, told Reuters.

Citi analysts now expect the economy to contract 1.7% in the second quarter, down from previous projections of a 4.7% expansion.

The bank cut its growth forecast for 2022 to 4.2% from 5.1%, but still sees scope for Beijing to stave off a more destructive downturn.

“The worst may be over as the government looks to build support,” Citi analysts said in a note.

“Furthermore, China still has policy options. At this point, a swift and decisive deployment of real stimulus is really essential to get growth back on track.”

(Reporting by Kevin Yao Editing by Tony Munroe and Sam Holmes) ((kevin.yao@thomsonreuters.com; +8610 5669 2128;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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