A Deep Dive Into The Chinese Economy
The Chinese Communist Party just concluded its 20th National Congress. For the first time in a long while, the Chinese economy was not providing a favorable backdrop for the gathering. Economic growth this year will fall far short of expectations, and there are a range of headwinds on the horizon. How China navigates these challenging conditions will be critical for its future, and for the world.
Following is an examination of some of the central factors that likely occupied attention during this week’s sessions.
Clients Cutting Back
Ahead of the National Congress, there was hope that Chinese policymakers might finally recalibrate their zero-COVID strategy. That optimism swiftly faded. In his two-hour speech, President Xi Jinping reinforced the country’s commitment to the stringent restrictions, noting that it had saved lives.
Lockdowns have certainly limited the consequences of COVID-19 for public health. But they have introduced severe consequences for economic activity. Frequent stay-home orders in key business hubs like Shanghai and Zhengzhou have proven to be a major disruptor for the industrial sector. Strict controls have disrupted logistics, leaving factories struggling for supplies. Frequent testing and quarantine requirements for truckers often contribute to delays in goods reaching the ports for export. Shipping agents are struggling to find sufficient cargo this year, even during peak shipping season.
Any lasting disruption in domestic supply chains will inflict further pain at home and abroad. Weaker export growth will weigh on manufacturing profits, and in turn put pressure on the labor market. Small- and medium-sized enterprises will be the worst affected, accounting for the majority (about 70%) of exports.
Lockdowns have also affected consumption. Households remain cautious amid lingering uncertainty over the virus, and rolling lockdowns have impacted household incomes. Domestic and international tourism by Chinese travelers is still a shadow of its pre-pandemic level.
For these reasons, many still expect China to quietly begin relaxing its COVID restrictions as we move into 2023. But for now, measures to curb the virus are still curbing the Chinese economy.