‘Zero Covid’ Behind It, China’s Economy Starts to Recover

‘Zero Covid’ Behind It, China’s Economy Starts to Recover

China’s consumers, while wary of big-ticket purchases like cars or apartments, are spending again. Many factories are still running below capacity, but exports have strengthened. Even as construction of new housing is slowing, investment in infrastructure and manufacturing is robust.

Economic growth in China recovered faster than expected during the first three months of the year, after the government abruptly lifted stringent “zero Covid” measures in early December.

The Chinese economy grew 4.5 percent from January through March compared with the same months last year, the country’s National Bureau of Statistics said Tuesday. Retail sales, a barometer of consumers’ willingness to spend, jumped 10.6 percent in March from a year earlier despite a slump in car sales.

The stakes for the rest of the world are high. China has been the single largest engine of global growth for most of the past two decades. Despite simmering tensions with the United States, and growing disagreements with Europe, China remains highly interdependent with both of their economies. The International Monetary Fund warned last week that the world faces an increasing risk of a painful slowdown this year as central bankers in the West raise interest rates and banks stumble.

Tuesday’s report on gross domestic product indicates that China, the world’s second-largest economy, is coming back to life.

“The quarterly growth is beginning to show a hoped-for healthy rebound,” said Louise Loo, an economist specializing in China in the Singapore office of Oxford Economics. “A very decent 4.5 percent year-over-year growth pace at this early stage of the reopening also provides the space for authorities to provide support to weaker segments of the economy as needed.”

China has taken steps to stimulate growth. The government is spending on high-speed rail lines, highways, bridges and other infrastructure, money that helps boost jobs and consumers. The central bank, the People’s Bank of China, told commercial banks last month that they could hold slightly smaller reserves against possible losses, freeing them to lend more.

Growth in the first months of this year was a considerable improvement from the 2.9 percent pace in the final quarter of last year, when a wave of illness swept across the country in December after pandemic controls were lifted.

So far, spending this year has been strongest for services like travel and meals. Big hotels in Beijing and Shanghai that turned off elevators last year and often had a single diner in 200-seat restaurants now find themselves with lines of people waiting for a table at breakfast. Most of that activity has been driven by Chinese consumers, as flights into the country have been slow to resume.

By contrast, a slow-motion housing crash remains a considerable drag on the economy. Construction of new homes, offices and stores shrank 5.8 percent in the first quarter compared to the same period last year.

The local economy in Suzhou, a city on the Yangtze River near Shanghai, shows many of the national trends. Consumers and companies are spending again. But there are considerable differences from neighborhood to neighborhood and even from business to business.

At a street market in Suzhou, a butcher named Jiang Yongming stood behind a table covered in slabs of raw pork and complained about the lingering frugality of his neighborhood’s residents. People buying meat ask him to chop a large filet into two or three pieces and then buy only one of the pieces, he said.

Liu Zhongyou, a catfish and clams vendor at a street market in Suzhou, has had a very different experience. He lost all his sales for a month last year when nearby restaurants were shut because of pandemic restrictions, but now the same eateries have resumed placing big orders.

“We were losing money during the epidemic — we had no customers,” Mr. Liu said. “It’s good now.”

The disparate experiences of two small businesses in the same market are indicative of China’s recovery — strong but uneven.

Retail sales in China had climbed only 3.5 percent in January and February compared with the same months last year. So the double-digit increase in March represented the first sign of a robust recovery. But the big jump is in comparison to an actual decline in March 2022, when Covid cases were rising, leading to the start of Shanghai’s two-month lockdown.

And some sectors have not recovered at all from the pandemic. Movie theaters have been particularly hard hit: A third of them went under. Box office revenues were down 55 percent last month compared with the same month four years ago, according to Maoyan Entertainment, an online ticketing company in Beijing that tracks the broader industry.

The incomes of millions of Chinese were severely depressed during the pandemic, and remain weak. Unemployment among 16- to 24-year-olds actually increased in March, to 19.6 percent, from 18.1 percent in February, as many recent college graduates struggle to find white-collar jobs and are wary of working in factories. Many households are holding down spending until they rebuild savings.

Next to one of Suzhou’s iconic canals lined with weeping willows sits a repair shop for tabletop electric motors. The shop has long supplied the many small workshops nearby that make nails and screws for the city’s huge industrial sector.

The shop’s proprietor, who gave his family name, Guo, said that some workshops had failed during the pandemic but that the survivors were back in business. “It is basically much better than before, and the ones that have not closed down have basically recovered,” Mr. Guo said.

Industrial production — the output of factories, mines and power plants — rose 3.9 percent in March from last year, an improvement from 2.4 percent in January and February. But industrial growth in March was still anemic by China’s standards. A sharp slowdown in the car industry was one of the main culprits.

Car sales fell 13.4 percent in the first quarter. At the end of December, China let national subsidies expire for electric cars and reinstated a sales tax on gasoline-powered cars that had been suspended during the country’s “zero Covid” measures.

Overall, exports are recovering, including a 14.8 percent jump in March compared with a year earlier. Factories are catching up on a backlog of orders that had accumulated during “zero Covid” lockdowns.

Investment in new apartment buildings, roads, factories and other so-called fixed assets has long been a mainstay of the Chinese economy. Overall fixed-asset investment is growing, including a 5.1 percent increase in the first quarter compared with the same period last year. But investment is not following a pattern welcomed by Beijing.

Government spending on new rail lines, roads and other infrastructure rose 8.8 percent in the first quarter compared to the same months last year, the National Bureau of Statistics said. Manufacturing investment was up 7 percent.

But after running out of cash over the past two years and defaulting on dozens of overseas bonds, developers of residential real estate are starting very few new housing projects, although housing prices are starting to stabilize.

They are focused on finishing the apartment buildings they already started, many of which have been delayed. Stock market investors remain wary of the sector, with one big developer, Sunac China Holdings, seeing its share price fall 59 percent last week when it resumed trading after being suspended for a year.

Even people who take delivery of new apartments from developers are often reluctant to spend money on painting and furnishing. At a paint store down the street from Mr. Guo’s electric repair shop, customers have disappeared.

“We have no business now,” said the store owner, who gave her family name, Lu. “Nobody comes.”

Li You contributed research.

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