China’s growth rate barely managed to touch the three per cent mark in 2022, the second lowest since 1976 and after the 2.2 per cent growth seen in the Covid year of 2020.
Its economy grew by 2.9 per cent in the final quarter of 2022, down from 3.9 per cent in the third quarter. The GDP was 121 trillion yuan (USD18 trillion) from 114.37 trillion yuan in 2021.
Even this low growth rate is hailed in China where fears of an economic free fall gripped the people, the government and analysts after the Zero-Covid policy began to harm manufacturing, jobs and demand.
A senior analyst at Guotai Junan Securities, Zhou Hao, could not hide his relief. He told the South China Morning Post: “China’s GDP report came in much better than expected, with fourth quarter GDP gaining 2.9 per cent year on year, much better than market consensus at 1.6 per cent. For the whole year, the economy expanded by 3 per cent, largely in line with our expectations.”
The trading community and the industry are beginning to realize the soup they are in. The National Burau of Statistics figures show that retail sales fell by 1.8 per cent last month compared with a year earlier, up from a fall of 5.9 per cent in November. Overall, in 2022, retail sales fell by 0.2 per cent.
Joblessness is another major worry. The urban surveyed jobless rate stood at 5.5 per cent in December, down from 5.7 per cent in November. The jobless rate for the 16-24 age group also remained at an elevated level of 16.7 per cent in December, down from 17.1 per cent in November. In this context, it is unclear how to read the official figures that claim China also created 12.06 million jobs last year.
The admission that the economy is not what the communist government claims claims from no less a person than Liu He, the Vice-Premier. Speaking at the World Economic Forum in Davos, he says the economy will get back to normal quickly.
“We are confident that in 2023 China’s growth will most likely return to its normal trend. The Chinese economy will see a significant improvement,” he said.
Liu also said China would stick to its socialist market economy and remain open to foreign businesses, adding that it would never return to a planned economy.
The Vice-Premier used the Davos platform to first justify President Xi Jinping’s Zero Covid policy and then convince the world that the economy had not been badly affected because of the strict lockdowns. He told the forum that the chaos in China was because of the sudden spurt in Covid infections, after the Zero Covid policy was ended last month, “which somehow is beyond our expectations”.
China now seeks to ensure that its international trade returns to pre-Covid levels and is not hampered by any kind of isolationist or inclusivist policies of the developed and developing countries.
He continued to seek cooperation from the global community and a role for China: “We have to abandon the Cold War mentality…Equitable division of labor, encouragement of competition, anti-monopoly, protection of property rights and IPRs, promoting entrepreneurship and free flow of production factors, fair distribution, a strong social safety net, and ensuring macroeconomic stability are the well-proven economic principles that are still relevant today.”
He said to the Forum: “We call for more attention to the negative spillover effect of major countries’ rate hikes on the emerging markets and developing countries so as not to add to more debt or financial risks. We stand ready to work with all parties to find solutions to the debt issues of some developing countries.” The Vice-Premier was not clear if he was referring to his country’s BRI project amid suspicions that China uses it to promote its influence across the world.
Eventually Liu came to the point China really wanted to make at Davos. That is, address the United States. His concern was about the aggressive interest rate increases by some countries, largely the US Federal Reserve, which raised rates by more than 400 basis points in the past 10 months. Despite tight capital controls and close monitoring of cross-border capital flows, the yuan plunged to a 10-year low of 7.25 against the US dollar in early November.
US Treasury officials were quoted by the media as saying that the two countries will exchange views on macroeconomic developments. The Chinese Commerce Ministry also wanted both countries to “strengthen macroeconomic and financial policy coordination”.
If there is to be any thaw in the US-China relations since the trade barriers during the Trump era, the signs may be visible next month. US Secretary of State Antony Blinken has plans to visit Beijing on February 5 and 6 and is expected to meet the new Foreign Minister Qin Gang.
The process of any reconciliation will be slow and in small doses. For instance, the US may insist on China taking the initiative by lifting the suspensions on high-level bilateral contacts – including anti-drugs initiatives and military dialogues – that Beijing imposed in August in reprisal for then-House speaker Nancy Pelosi’s trip to Taiwan. It all depends on how China feels in taking the first step.