China faces uphill task to repeat 2020 miracle

“This time around, the outside world chooses to lie flat and we see more negative impact on China.” A source

BEIJING: China’s slowing economy will struggle to stage the kind of stunning recovery it achieved from the early depths of the pandemic two years ago, as its formidable export machine teeters and options to revive investment and consumption dwindle.

Analysts and policy insiders say that means China’s leaders may have to quietly accept economic growth of about 5% for this year, below Beijing’s current target of “around” 5.5%.

With no end in sight to China’s zero-covid policy, investors worry a prolonged slowdown in the world’s second-largest economy could further weaken the global recovery and that worsening supply chain disruption could fan inflation risks.

That outlook contrasts sharply with 2020, when China’s economy roared back from its a deep pandemic-induced contraction, thanks to a combination of stimulus and surging exports as locked-in global shoppers splurged on Chinese goods.

“China’s economic and Covid cycles are different to that in other countries. Back (in 2020), China effectively controlled the Covid outbreak and achieved a rapid recovery in production and reaped benefits,” said a policy source who spoke on condition of anonymity.

“This time around, the outside world chooses to lie flat and we see more negative impact on China as they tighten policies that will hit external demand, putting pressure on China’s foreign trade.”

Even before widespread Covid curbs in Shanghai and other major Chinese cities hit the economy, private-sector economists considered Beijing’s growth target as ambitious.

The United States, Europe and other major economies have chosen to “live with the virus” as they reopen and rely on vaccines to fight the pandemic.

In China, such policies are seen as encouraging inaction against a deadly and highly infectious virus and as such are politically unpalatable.

In 2020, China surged back from its pandemic slump to become the only major economy to grow in a turbulent year, in which the Covid-19 shock forced Beijing to scrap its annual growth target.

On the last day of 2020, President Xi Jinping declared victory over the pandemic under the banner of the Communist Party, while senior officials touted the ruling party’s ability to “turn crisis into opportunity.”

That early success means China is now likely to stick with its zero-covid policy until at least a key party meeting towards the end of the year.

Unlike 2020, however, the US Federal Reserve and other central banks are raising interest rates to curb runaway prices, making it harder for the People’ Bank of China to ease monetary policy due to worries about capital outflows and local inflation.

Chinese consumers are tightening belts amid rising job losses and falling incomes, and the government remains reluctant to give cash handouts similar to those used in the United States and Europe, policy insiders say. Some Chinese cities have offered shopping vouchers to residents.

Channelling more money into big-ticket infrastructure projects is China’s most viable move, but may not be enough to pick up the slack as property spending weakens, they said. — Reuters