China economy recovering but hampered by repeated coronavirus outbreaks

Wang Jian is anxious to get back to work teaching basketball to children now that China has lifted anti-COVID-19 restrictions. But his gym in the eastern city of Shenyang has been closed for a month because all its coaches are infected.

The most optimistic forecasts say China's business and consumer activity might revive as early as the first quarter of this year. But before that happens, entrepreneurs and families face a painful squeeze from a surge in virus cases that has left employers without enough healthy workers and kept wary customers away from shopping malls, restaurants, hair salons and gyms.

 

I hope the situation will turn around in March or April with no more COVID shocks, said Wang, 33, who went without a paycheck for four months when the gym closed during virus outbreaks. If parents worry about possible reinfection, they simply won't send their children for training.

The abrupt decision by President Xi Jinping's government to end controls that shut down factories and kept millions of people at home will move up the timeline for economic recovery, but might disrupt activity this year as businesses scramble to adapt, forecasters say.

This will be a bumpy process, said Dong Chen, chief Asia economist for Pictet Wealth Management.

People still are struggling with infections, but we think this could be temporary, Chen said. Broadly, we think this is a positive surprise.

The decision to accelerate China's reopening is a boost for the global economy at a time when activity in the United States and Europe is weakening after repeated interest rate hikes by central banks to cool surging inflation.

It is likely to help revive auto sales and propel demand for imported consumer goods, oil and food in China, one of the biggest global markets. Countries including Thailand with big tourism industries look forward to an influx of Chinese travelers.

The World Bank and private sector forecasters have cut estimates of China's economic growth last year to as low as 2.2% due to the infection spike that started in early October and challenged Beijing's zero-COVID goal of isolating every case. The International Monetary Fund expects a recovery to 4.4% this year, but that still would be among the lowest levels of the past three decades.

Zero-COVID kept China's infection numbers low but shut down Shanghai and other industrial cities last year for two months, disrupting manufacturing and shipping. Business groups said global companies were shifting investment plans away from China because rules that required visitors from abroad to quarantine for a week kept executives from visiting.

The ruling party promised Nov. 11 to reduce the cost and disruption. A series of surprise announcements rolled back travel and other restrictions that health experts and economists had expected to persist through mid-2023.

On Sunday, Beijing began allowing travelers to enter China without quarantines. The government has yet to say when China will resume issuing tourist visas.

The sudden, chaotic way in which pandemic policies have been changed means that growth will be hampered in new ways, Daniel H. Rosen, Charlie Vest and Rogan Quinn of Rhodium Group said in a report. High numbers of infections make it "realistic to expect production to be hampered for a substantial part of 2023.

Forecasters say the economy probably contracted in the final quarter of 2022 as virus case numbers rose and retail spending and trade fell.

Exports shrank after American and European consumer demand was depressed by interest rate hikes. That forces Chinese planners to make up for lost foreign sales by trying to boost consumer demand.

The key to rapid economic recovery" is to "convert income into consumption and investment as much as possible, one of the country's most prominent financial figures, Guo Shuqing, the ruling party secretary for the central bank, told the official Xinhua News Agency.

Informal measures show public and business activity improving but weak.

This month's subway passenger numbers in 10 large cities recovered to 55-60% of the level a year ago, up from 30-35% last month, according to Macquarie Group. Roads are growing more congested.

Foreign companies that see China as a critical market welcome the change but are struggling, said Eric Zheng, president of the American Chamber of Commerce in Shanghai.

Companies were not prepared for this abrupt change, said Zheng, whose group has about 1,000 member companies. It is hard to manage a workforce when a lot of people are getting sick.

Still, things are almost going back to normal, Zheng said. Once life goes back to normal and consumers are out shopping, things will definitely improve.

Another business group, the American Chamber of Commerce in China, said more than 70% of companies that responded to a poll last month expressed confidence the infection wave would last no more than three months and end early this year.

The ruling party is trying to nudge up growth by easing restrictions on financing for real estate and winding down anti-monopoly and data security crackdowns on tech companies that caused their stock market values to plunge.

In December, regulators announced Ant Group, an online financial company that was forced to call off a planned multibillion-dollar public stock offering in 2020, would be allowed to raise 10.5 billion yuan ($1.6 billion) for its consumer unit, more than doubling its capital.

These measures are helpful, but far from enough to move the needle, Larry Hu and Yuxiao Zhang of Macquarie said in a report.

Hotels, restaurants and other businesses hoping for a boost from this month's Lunar New Year holiday, the busiest tourism season, suffered a blow when some local authorities appealed to migrant workers to skip traditional visits to their hometowns that might spread infections.

The operator of the 12-room Oriental Hotel in the eastern city of Hefei, who would give only his family name, Huang, said he is losing 4,000 yuan ($550) a month. His occupancy rate is 20%, well below the 50% needed to break even.

People stay home and maybe they worry about possible reinfection, Huang said. If it stays the same for another year, I will give up running the hotel.

The National Health Commission stopped announcing case numbers last month, but reports by city and county governments suggest hundreds of millions of people might have been infected.

The Zhengtai Restaurant in the northwestern city of Jinzhong closed for two weeks because almost all its 57 employees were infected, according to the manager, Chang Zhigang. Chang said the business has lost about 2 million yuan ($300,000) per year since the start of the pandemic.

We don't expect the situation to turn around within a short time, given there are very few people on the street, Chang said.