May 31, 2022 | China Center Publications
The worst of the COVID shock may have occurred in April, but stringent mobility controls are far from over. Just as critical, China’s current economic recovery is unlikely to be as strong as the recovery that followed China’s first COVID shock in the 2H 2020. At that time, China’s real estate sector was still booming, and Chinese exports were surging in response to global COVID-related demand. Both growth drivers are now spent, and real estate has already turned into a drag on the economy.
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Status of China’s Economic Recovery – Economic activity is dropping sharply amidst ongoing “Zero COVID” lockdowns, with April data showing negative growth in industrial production and a double-digit contraction in retail sales (see TCB commentary on Zero COVID). Despite a steady decline in new COVID cases since mid-April, mobility and logistic controls remained mostly in place by the end of May. While industrial production and construction activity is unlikely to fully recover by June, new policy measures were introduced in May to spur demand for housing and cars. Further easing is expected for the housing market to build confidence among investors and home buyers.
Investment Trends – Fixed Asset Investment growth dropped from 9.3 percent in Q1 to around 2 percent in April. COVID-related uncertainty and the weakening growth outlook are undermining investor sentiment. The benchmark rate cut for long-term loans in May underscores China’s policy priority to guide existing ample liquidity toward household mortgage and business investment. Backed by such policy support, investment is likely to outperform both consumption and exports this year.
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