The Nanmen Market in Suzhou, China, this month. Consumers and companies are starting to spend again, but unevenly. Photo / Qilai Shen, The New York Times
The Chinese economy grew 4.5 per cent in the first three months of the year, a sizable pick-up from the end of 2022, when the relaxation of pandemic prevention measures led to a wave of illness.
China’s consumers, while wary of big-ticket purchases such as cars or apartments, are spending again. Many factories are still running below capacity, but exports are strengthening. Even as construction of new housing is slowing, investment in infrastructure and manufacturing is robust.
Despite lingering pockets of economic weakness, China is recovering faster than expected after the government in early December abruptly lifted “zero Covid” measures, such as shutdowns and mass testing, that had effectively choked growth.
The economy expanded 4.5 per cent from January through March compared with the same months in 2022, the country’s National Bureau of Statistics said on Tuesday. The rise was driven in large part by consumers: retail sales, a barometer of spending, jumped 10.6 per cent in March from a year earlier despite a slump in car sales.
The stakes for the rest of the world are high after China experienced one of its worst economic performances in years in 2022. For most of the past two decades, China has been the single largest engine of global growth. Despite simmering tensions with the United States and growing disagreements with Europe, China remains highly interdependent with both those economies at an uneasy time. 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 in the Singapore office of Oxford Economics who specialises in China . “A very decent 4.5 per cent 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 investing in high-speed rail lines, highways and bridges, money that makes travel easier and creates jobs. 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.
The growth in the first months of this year was a considerable improvement from the 2.9 per cent pace in the final quarter of last year, when a wave of illness swept across the country after pandemic controls were lifted, and is close to the 5 per cent target Beijing has set for 2023.
Spending has been strongest for services such as travel and meals. 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 the same time, China faces serious headwinds, including a widening gap in government budgets, as revenue lags and spending rises. And a slow-motion housing crash remains a drag on the economy. Construction of new homes, offices and stores in the first quarter shrank 5.8% from a year earlier.
The local economy in Suzhou, a city on the Yangtze River near Shanghai, shows many of the national trends. Consumers and companies are spending. But there are considerable differences from neighbourhood to neighbourhood and even from business to business.
At a street market in Suzhou, Jiang Yongming, a butcher, stood behind a table covered in slabs of raw pork and complained about the lingering frugality of his neighbourhood’s residents. People buying meat ask him to chop a large filet into two or three pieces and then buy only one of them, 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 are placing big orders.
“We were losing money during the epidemic - we had no customers,” Liu said. “It’s good now.”
The disparate experiences of two small businesses in the same market reflect China’s recovery - strengthening but unevenly.
Retail sales climbed only 3.5 per cent in January and February compared with the same months last year. So the big increase in March represented the first sign of a robust recovery. But the jump was from 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. One-third of movie theatres went under. Box office revenues were down 55 per cent in March compared with four years ago, according to Maoyan Entertainment, an online ticketing company in Beijing that tracks the industry.
Even as China’s economy begins revving up, there is little sign of inflation. Unlike the West, China refrained from sending pandemic checks and coupons to households. So people have limited ability to bid up prices for goods. Consumer prices were only 0.7 per cent higher in March compared with last year, and the prices producers charge their customers for industrial goods fell.
“Inadequate domestic demand remains prominent, and the foundation for economic recovery is not solid yet,” said Fu Linghui, an official at the statistics bureau.
The incomes of millions of Chinese were severely depressed during the pandemic, and remain weak. Unemployment among 16- to 24-year-olds increased in March to 19.6 per cent from 18.1 per cent in February. In a positive sign, unemployment among residents ages 25 to 59 fell to 4.3 per cent in March, from 4.8 per cent in February.
Next to one of Suzhou’s iconic canals lined with weeping willows sits a repair shop for tabletop electric motors. The shop supplies the many small workshops nearby that make nails and screws for the city’s huge industrial firms.
The proprietor, who gave his family name, Guo, said that some businesses like his had failed during the pandemic but that the survivors were back. “It is basically much better than before, and the ones that have not closed down have basically recovered,” Guo said.
Industrial production - the output of factories, mines and power plants - rose 3.9 per cent in March from last year, an improvement from 2.4 per cent in January and February. But industrial growth was still anaemic by China’s standards. A sharp slowdown in the car industry was one of the main culprits.
Car sales fell 13.4 per cent in the first quarter. At the end of December, China let subsidies expire for electric cars and reinstated a sales tax on gasoline-powered cars that had been suspended.
Overall, exports are recovering and jumped 14.8 per cent in March. Factories are catching up on a backlog of orders that had accumulated during “zero Covid” lockdowns.
Investment in apartment buildings, roads, factories and other so-called fixed assets has long been a mainstay of the Chinese economy. Fixed-asset investment is growing - 5.1 per cent in the first quarter compared with 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 per cent in the first quarter compared with last year. Manufacturing investment was up 7 per cent.
Few sectors illustrate the challenges still facing China more than real estate.
After running out of cash over the past two years and defaulting on dozens of overseas bonds, housing developers are starting very few new projects, although prices are starting to stabilise. Stock market investors remain wary: The share price of one big developer, Sunac China Holdings, tumbled 59 per cent last week when it resumed trading after being suspended for a year.
Even people who take delivery of new apartments are often reluctant to spend money on painting and furnishing. At a paint store down the street from 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.”
This article originally appeared in The New York Times.
Written by: Keith Bradsher
Photographs by: Qilai Shen
©2023 THE NEW YORK TIMES
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