The Strictest Restrictive Measures Have Incredibly Slowed Down the Growth of the Chinese Economy

The Chinese economy further lost strength in November as factory production slowed and retail sales continued to decline, recording the worst readings in six months, shaken by a rise in Covid-19 cases and ongoing virus containment.

Data indicates a further deterioration of economic conditions as quarantines remain in place in many cities, the property sector crisis continues, and global demand weakens, although Beijing has lifted some of the strictest restrictions in the world following widespread and rare public protests in China, Reuters reported.

Industrial production rose by 2.2 percent in November compared to the previous year, missing expectations for a 3.6 percent increase in a Reuters survey and significantly slowing from the five percent growth recorded in October, data from the National Bureau of Statistics (NBS) showed on Thursday. The slowest growth since May was recorded, partly due to disruptions in key manufacturing hubs Guangzhou and Zhengzhou.

Decline in Real Estate, Recession, Geopolitical Uncertainties…

Sales in the hospitality sector fell by 8.4 percent compared to the previous year, accelerating from an 8.1 percent decline in October. Meanwhile, automobile production fell by 9.9 percent compared to an 8.6 percent increase in October.

The Chinese yuan weakened against the dollar on Thursday as the data affected investor confidence. The Chinese central bank increased cash ‘injections’ into the banking system on Thursday and maintained interest rates on medium-term loans (MLF) to ensure adequate liquidity conditions.

The world’s second-largest economy has weakened due to its zero-COVID epidemic policy, as strict movement controls have continuously stifled consumption and production. Other challenges facing the country include a decline in real estate, risks of a global recession, and geopolitical uncertainties.

Investment in real estate fell by 19.9 percent year-on-year, the fastest pace since the statistical office began collecting data in 2000, according to Reuters calculations based on NBS data.

Policymakers have provided support to the sector on almost all fronts, including bank credit lines, bond financing, and equity financing, but analysts say such effects are yet to be seen as home sales remain weak.

Investment in fixed assets rose by 5.3 percent in the first 11 months of this year, compared to expectations of a 5.6 percent increase and a 5.8 percent increase in the January to October period.

Employment has remained low among companies that are cautious about their finances. The national unemployment rate rose to 5.7 percent in November from 5.5 percent in October. Youth unemployment fell to 17.1 percent from 17.9 percent in October.

The Central Economic Work Conference Approaches

– Data for December could be even worse, but not because everything is worsening in China, but because the challenges are nearing an end – said Alicia Garcia-Herrero, chief economist for Asia and the Pacific at Natixis.

– I expect a significant collapse in industrial production in December. This will be an immediate consequence of the reopening – she said, lowering GDP growth in the fourth quarter to 2.8 percent from the previous 3 percent.

China has set plans to increase domestic consumption and investment, state media reported on Wednesday, as policymakers face multiple challenges following the abrupt easing of strict Covid-19 restrictions, which are expected to trigger a wave of infections.

The Chinese economy grew by only three percent in the first three quarters of this year and is expected to remain around that rate for the entire year, significantly below the official target of ‘around 5.5 percent’.

All eyes are on the closed annual Central Economic Work Conference, where Chinese leaders gather to set the economic agenda for the next year. They are likely to outline more stimulus measures, eager to support growth and mitigate disruptions caused by the sudden end of COVID-19 restrictions, policy experts and analysts said.