The cost of President Xi’s hard-line Covid control measures over much of 2022 was there for all the world to see on Tuesday as China’s economic slowed to levels not seen in decades.
The country’s National Bureau of Statistics said GDP grew by just 3% over 2022, well down from the target of about 5.5% and less than half 2021’s 8.4%.
It underscored the heavy costs across the economy and to hundreds of millions of people of the government’s longstanding zero-Covid strategy before it was abruptly abandoned last month.
The economy didn’t grow in the final quarter, surprising analysts who had forecast a small fall of 0.8%.
The National Bureau of Statistics said the economy year on year growth in the final quarter was 2.9%, down from the 3.9% in the three months to September, and a clear sign of the cost of the lockdown and zero Covid policies.
“The foundation of (the) domestic economic recovery is not solid as the international situation is still complicated and severe while the domestic triple pressure of demand contraction, supply shock and weakening expectations is still looming,” the statistics bureau said in a release on Tuesday.
Retail sales fell by 0.2% for the year. In December they fell 1.8% from a year ago, less than the expected 8.6% plunge predicted in forecasts and better than the 5.9% drop in November when the Covid restrictions started breaking under pressure from countrywide protests.
Forecasters say that while consumer and business activity is reviving, consumers especially remain wary, returning only gradually to shopping malls and restaurants amid a surge in COVID-19 infections.
The government says the peak of that wave appears to have passed.
Industrial production rose by 3.6% in 2022 and by 1.3% in December, well above the 0.2% predicted in forecasts and a sign of how quickly companies started running production lines as the Covid restrictions were eased.
Fixed asset investment for 2022 rose by 5.1%, slightly above the 5% expected by forecasters. Infrastructure investment on a year-to-date basis grew faster in December than in November, while investment into manufacturing slowed its growth.
The unemployment rate in cities was 5.5.% in December, better than the 5.7% the month before while that of younger people ages 16 to 24 remained far higher at 16.7%.
Kang Yi, director of the NBS, described China’s 3% growth as “relatively fast” in light of unexpected situations and in contrast to Germany, the US and Japan.
However, he said the global trade situation was not optimistic, and that the world economy may face stagflation.
“Businesses still face many difficulties in production and operation, scientific and technological innovation is not strong enough, and people still have considerable difficulties in employment,” Kang said in Mandarin, translated by CNBC.
“We still need to make strenuous efforts to promote overall economic improvement.”
China’s trade performance worsened in the final three months of 2022 with exports tumbling and imports slowing and then falling.
So while the economy looks like it ended 2022 steadier than it was in November or the start of December, investor attention turns to 2023. The World Bank reckons the economy might grow at around 4.3% this year, other forecasts claim 5%.
No one quite knows and the outlook will now dominate the ‘China re-opening’ story that markets had focused on this year.
China’s leaders are set to announce the full-year GDP growth target in March at the 15th annual National People’s Congress meeting.
It will be the first such gathering since Chinese President Xi Jinping consolidated his power at October’s National Congress of the Communist Party of China.
It is clear that without the dramatic change in Covid policy in December, the economy was slowing towards a cliff and social unrest and tensions – which are hated by the Communist Party and its leaders – threatened to get out of hand after the flare up in late November at the huge Apple factory owned by Foxconn in central China.
That protest and follow up protests elsewhere in the following week to 10 days, were more potent factors than anything else in forcing the ending of the Covid zero policies and the ‘re-opening’ of China.
But nothing will really change until there is clear evidence that the country’s stricken property sector has been rebalanced and refinanced.
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As important as the GDP and other data were yesterday to our understanding of China’s present economic health, a far more important release was the news from the National Bureau of Statistics that China’s population had shrunk for the first time since 1961.
The contraction has been long forecast but it still provided a shock to many analysts as it popped out about the same time on Tuesday from the NBS as the GDP and other data.
The NBS said on Tuesday that 9.56 million people were born in China in 2022, while 10.41 million people died.
China counts only the population of the mainland while excluding Hong Kong, Macao and self-governing Taiwan as well as foreign residents.
The last time China is believed to have recorded a population decline was during the Great Leap Forward at the end of the 1950s, Mao Zedong’s disastrous drive for collective farming and industrialisation that produced a massive famine that killed tens of millions of people.
That in turn led to the really mad years of the Cultural Revolution.
Some analysts speculated that the number of deaths might this year will increase, thanks to Covid, while the number of births will again fall. The near 60,000 death toll revealed last weekend will add to this year’s shrinkage.
The National Bureau of Statistics reported the country had 850,000 fewer people at the end of 2022 than at the end of 2021. That’s more than 2,600 deaths a day more than births.
That left a total of 1.411.75 billion people, the bureau said at a briefing on Tuesday.
Men also continued to outnumber women by 722.06 million to 689.69 million, the bureau said, a result of the now-abandoned one-child policy and a traditional preference for male offspring to carry on the family name.
China has long been the world’s most populous nation and will soon be overtaken by India.
Economists say the impact of the shrinkage can be softened by including Hong Kong and Macau’s populations but there are political risks in doing that and regardless of moves like that, the contraction is now underway.
Only a surge in births or migration will soften or reverse the trend.
Policies have been introduced to boost births, without much success while migration will not happen. More Chinese people will want to leave than outsiders want to move to China to live.
A contracting population will mean slower economic growth, rising tax burdens, fewer jobs, rising health and medical bills – it will be bad news for retailers, investors, carmakers, whitegoods companies, media companies – and is going to really rattle property companies – over time.
There will be fewer new houses and units needed (over time), less infrastructure will be needed as well (and that will be unwelcome news for countries like Australia and companies like BHP, Rio Tinto, Fortescue and others supply goods and services to the country).
You only have to look at countries where populations are falling – Japan – Italy, Russia – to see the damage from slowing growth and pace of activity across the entire economy – falling job numbers, stagnation, rising social unrest and intergenerational pressures.
