Economists Advise China Over its Economy | Monday, May 16, 2022:



China’s Economic Distress Deepens as Lockdowns Drag On

Stella Yifan Xie

Economists call for more aggressive stimulus; slowdown is worst since the initial Covid-19 outbreak in 2020

HONG KONG—China’s economy descended deeper into a Covid-19-induced doldrums last month, raising questions about whether Beijing’s planned stimulus measures can prevent a prolonged downturn.

Consumer spending and factory output tumbled in April, while growth in infrastructure investment—which Beijing has been counting on to prop up growth this year—slowed sharply, China’s National Bureau of Statistics reported Monday.

China’s headline jobless rate, meantime, surged to a two-year high of 6.1%, further evidence of the economic damage unleashed by the country’s strictest pandemic containment measures in more than two years.

While activity could snap back if lockdowns are ultimately lifted, the damage from China’s commitment to stamping out outbreaks of Covid-19 is rippling through the economy and lingering. The question now is whether policy makers in the world’s second-largest economy will be able to soften the blow with fiscal and monetary policy tools.

China’s stimulus measures since the pandemic first exploded have focused on the supply side. Beijing’s reluctance to support households directly and its continuing Covid-19 restrictions have sapped the power of consumer demand to boost the economy, economists say.

Infrastructure spending, another favored tool of Beijing’s policy makers that leader Xi Jinping has promoted in recent weeks, may not work as well as it has in the past, owing in part to current debt levels, said Stephen Roach, an economist and Yale University lecturer.

“[China] is facing some extraordinary headwinds that I think its leadership is not responding to effectively,” said Mr. Roach, a former chairman of Morgan Stanley Asia.

The hardest-hit sector of China’s economy, according to Monday’s data, was consumer spending. Retail sales in April were down 11.1% from a year earlier, the second-straight monthly decline and the biggest contraction since March 2020.

In Shanghai, the citywide lockdown meant not a single car was sold last month, the Shanghai Automobile Sales Association said Monday.

Covid-19 restrictions could also be felt in China’s manufacturing sector, where struggles to get workers on factory floors, combined with softening overseas demand for Chinese goods, crippled output and disrupted supply chains.

Industrial production in April was down 2.9% from a year earlier, after a 5% gain in March. Output in the automotive sector plunged 43.5% by volume as Covid-19 swept through key production centers in and around Shanghai and in northeastern Jilin province, overcoming efforts by makers including Tesla Inc.—whose Shanghai factory is its largest globally—to keep operations going by having workers live on-site.

Year-over-year growth in fixed-asset investment, including infrastructure and real-estate projects, slowed to 6.8% for the first four months of the year from 9.3% for the first quarter.

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The surveyed urban unemployment rate, China’s headline measure of joblessness, exceeded the official 5.5% target for the second consecutive month in April, climbing to 6.1%—the highest since February 2020’s 6.2%. Joblessness among those ages 16 to 24 rose to 18.2%, the highest level since before the pandemic.

Fu Linghui, an official at China’s statistics bureau, said Monday that the challenges facing the economy have exceeded expectations, though he expressed optimism that the difficulties would prove to be short-term.

On Monday, Citigroup cut its year-over-year gross domestic product growth forecast for the second quarter to 1.7% from 4.7%, and its full-year forecast to 4.2% from 5.1%.

As the outlook deteriorates, a number of Chinese economists and scholars, speaking at a forum in Beijing on Saturday, called for a more aggressive policy response.

“We’ve reached a point where we should use policies to save the economy at all costs,” said Huang Yiping, an economics professor at Peking University and a former central-bank adviser, according to an official transcript.

Zhaopeng Xing, senior China strategist at investment bank ANZ, said China’s economy faces two challenges: The room for monetary easing is narrowing and business and consumer sentiment is deteriorating. A rapid rebound similar to the one that followed Wuhan’s lockdown in 2020 is nearly impossible, he said, given the higher transmissibility of the Omicron variant of the coronavirus.

The worsening economic picture wasn’t enough to prompt China’s central bank to cut its lending rates on Monday, as many economists had expected. Despite subdued consumer inflation, economists say there is limited room for monetary easing, as rate increases by the Federal Reserve’s fuel concerns about capital outflows from China.

The People’s Bank of China did, however, let banks cut mortgage rates for first-time home buyers on Sunday, in a move to prop up the sagging property sector. Many economists, however, are skeptical that such moves can reverse a government-induced spiral that is now a year old.

April new-home starts and home sales by value were down 44% and 47%, respectively, from a year earlier, worse than March’s slide, official Chinese data released Monday showed.

The larger challenge facing Beijing, economists say, is stimulating demand even as businesses and consumers turn more pessimistic—and senior Chinese leaders reaffirm their insistence on stamping out all Covid-19 infections.

In a reflection of waning investment appetite, growth in corporate mid- to long-term loans slowed sharply in April from March. Total household loans, meantime, dropped by 1.7%, as demand for new mortgage and consumer debt both contracted.

In contrast to their counterparts in most developed economies, including the U.S., policy makers in China since the start of the pandemic have avoided handing out cash or beefing up unemployment benefits to households. Instead, Beijing has said it would channel cheaper loans to businesses and offer as much as 2.5 trillion yuan, equivalent to $368 billion, in tax refunds to companies and business owners this year.

“The real weakness is on the demand side, but almost all of the economic measures implemented are supply-side measures,” said Michael Pettis, a finance professor at Peking University.

Shen Jianguang, chief economist at, questioned the effectiveness of existing policy responses and called for the government to distribute consumption vouchers to boost demand.

“Few companies will benefit from tax cuts if the growth of their income and profits suffer sharply,” he said at Saturday’s Peking University forum.

Grace Zhu and Bingyan Wang contributed to this article.

Write to Stella Yifan Xie at

Appeared in the May 17, 2022, print edition as 'China’s Economic Distress Grows'.


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