China’s economy grew at least 4.4% in 2022, according to leader Xi Jinping, a figure much stronger than many economists had expected. But the current Covid wave may hobble growth in the months ahead.
China’s annual GDP is expected to have exceeded 120 trillion yuan ($17.4 trillion) last year, Xi said in a televised New Year’s Eve speech on Saturday. That implies growth of more than 4.4%, which is a surprisingly robust figure.
Economists had generally expected growth to slump to a rate between 2.7% and 3.3% for 2022. The government had maintained a much higher annual growth target of around 5.5%.
“China’s economy is resilient and has good potential and vitality. Its long-term fundamentals remain unchanged,” Xi said. “As long as we are confident and seek progress steadily, we will be able to achieve our goals.”
In his remarks, Xi made a rare admission of the “tough challenges” experienced by many during three years of pandemic controls. Many online commentators noted that his tone appeared softer and less self congratulatory than his New Year’s addresses over the past two years.
In 2020, Xi devoted much time to praising China’s economic achievements, highlighting that it was the first major global economy to achieve positive growth. Last year, he emphasized the country had developed rapidly and that he had won praise from his counterparts for China’s fight against Covid.
However, in 2022, China’s economy was hit by widespread Covid lockdowns and a historic property downturn. Its growth is likely to be at or below global growth for the first time in 40 years, according to Kristalina Georgieva, managing director of the International Monetary Fund.
Chinese policymakers have vowed to seek a turnaround in 2023. They’re betting that the end of zero-Covid and a series of property support measures will revive domestic consumption and bolster growth.
But an explosion of Covid infections, triggered by the abrupt easing of pandemic restrictions in early December, is clouding the outlook. The country is battling its biggest-ever Covid outbreak.
Last week, Beijing announced it will end quarantine requirements for international arrivals from January 8, marking a major step toward reopening its borders.
Empty streets, shops
The sudden end to the restrictions caught many in the country off guard and put enormous strain on the healthcare system.
The rapid spread of infections has kept many people indoors and emptied shops and restaurants. Factories have been forced to shut down or cut production because workers were getting sick.
Key data released Saturday showed factory activity in the country contracted in December by the fastest pace in nearly three years. The official manufacturing purchasing managers’ index (PMI) slumped to 47 last month from 48 in November, according to the National Bureau of Statistics.
It was the biggest drop since February 2020 and also marked the third straight month of contraction for the index. A reading below 50 indicates that activity is shrinking.
The non-manufacturing PMI, which measures activity in the services sector, plunged to 41.6 last month from 46.7 in November. It also marked the lowest level in nearly three years.
“For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative,” said Georgieva in an interview aired by CBS News on Sunday. “The impact on the region would be negative. The impact on global growth would be negative.”
Analysts are also expecting the economy to face a bumpy start in 2023 — with a likely contraction in the first quarter, as surging Covid infections dampen consumer spending and disrupt factory activity.
However, some forecast the economy will rebound after March, as people learn to live with Covid. Many investment banks now forecast China’s 2023 growth to top 5%.