“Since March, the situation in the world has developed in a complicated way,” said the spokesman. “Some factors were above expectations.” The problems of Chinese companies have increased. The logistics are affected. Declining consumption caused retail sales in March to fall sharply by 3.5 percent compared to the same month last year. It is questionable whether the government can achieve its growth target of 5.5 percent this year. Last year, a strong 8.1 percent was achieved, but this was due to the low basis for comparison due to the pandemic in the previous year.
“The Chinese economy looks surprisingly fragile after the strong economic recovery last year,” said Max Zenglein from the China Institute Merics in Berlin. “Without a massive stimulus package, the outlook for 2022 looks bleak.” The strict Covid policy will “continue to choke off the already faltering consumption for the foreseeable future”. Exports, which are an important pillar of growth, are also likely to fail, as the higher inflation caused by the Ukraine war is reducing purchasing power in important export markets.
Also with a view to the party conference in the fall, at which state and party leader Xi Jinping wants to be confirmed in office, Zenglein said that it was a “politically highly explosive year”. The high growth target is particularly aimed at stability on the labor market. A record number of almost 11 million university graduates must be absorbed. “China’s government will have to expand the stimulus package and rely more on infrastructure programs and state-owned enterprises to stabilize growth,” said Zenglein. “Indebtedness and risks in the financial system may increase again.”
With the arrival of Omikron BA.2, China is experiencing the largest corona wave since the pandemic began more than two years ago. There are curfews in Shanghai, the country’s economic and financial center, and other major cities. Tens of millions of people cannot leave their homes. The strict corona measures as well as the slower growth also affect German companies. Some had to shut down their production for weeks or complained about transport problems. German exporters had to accept a drop of 9.8 percent in trade with China in March.
The unexpectedly strong growth in the first quarter “so far hardly seems to reflect the war in Ukraine and the current Covid outbreaks in China,” said Jens Hildebrandt, executive board member of the German Chamber of Commerce in China (AHK). In the meantime, however, domestic consumption has “worryingly” decreased. What the foreign trade figures have already signaled also applies to growth: Whether the target of 5.5 percent aimed for for the year as a whole is still realistic “seems more than questionable”.
Experts from Oxford Economics were also surprised by the still strong quarterly figures: “We believe that it primarily reflects the growth that the official data show for January and February, before economic activity weakened in March.” The disruptions are likely to continue for weeks.
In order to stimulate the economy, the central bank had already announced on Friday that it would slightly lower the requirements for banks’ minimum reserves. This should provide the economy with around 530 billion yuan (76 billion euros) in liquidity in the long term. However, the central bank had gone no further and had not hiked interest rates. All eyes are now on the government, which could announce major stimulus measures.
/lw/DP/eg
BEIJING (dpa-AFX)
Image sources: TungCheung/Shutterstock.com, gyn9037/Shutterstock.com