The Chinese economy held up far better than feared in the fourth quarter and retail sales logged only a modest decline in December, even as the nation grappled with a tidal wave of disease following the abrupt abandonment of strict public health measures after nearly three years.
GDP growth came in at 2.9% for Q4, according to data released Tuesday. Consensus expected 1.6%. Needless to say, the veracity of the figures is debatable.
Q4’s print, good as it was under the onerous circumstances, was still subdued by Chinese standards. In the second quarter, the economy slowed to a halt when a draconian lockdown in Shanghai underscored Xi’s commitment to “COVID zero” in the months ahead of October’s Party congress, where he consolidated power and purged moderates.
For the better part of a year, analysts and economists the world over insisted that if only Xi would jettison “COVID zero,” economic activity would stabilize. By all indications headed into Tuesday’s too-good-to-be-true print, that wasn’t what happened.
On the heels of rare street protests against the curbs, the Party did away with the policy, but the subsequent wave of infections (and harrowing scenes at hospitals and crematoriums) stoked fear, leading to a dramatic decline in services sector activity.
That should’ve translated into another severe drop in retail sales. Instead, December’s decline was a pedestrian 1.8%, according to the government. Consensus expected a 9% drop. Some cited an outsized jump in medicine sales, as well as car-buying for the beat. Recall that retail sales plunged in November, when rising COVID cases prompted a stringent crackdown.
December’s suspiciously resilient print notwithstanding, the back-to-back declines for retail sales demonstrated the Party’s impossible dilemma. Lockdowns were bad for growth, but so was lifting the lockdowns.
Traders and investors being the cold, greedy, credulous creatures they are, markets are now looking past the piles of bodies to more robust growth outcomes and a less onerous regulatory regime.
Both mainland and Hong Kong shares are up dramatically from the October lows, even as some urge caution on the economic outlook, to say nothing of the possibility that Xi will ultimately cap profits for mega-cap Chinese tech through various means.
Read more: Gambling On Mao
Tuesday’s data showed industrial output rose a surprisingly strong 1.3% in December. That’s hardly robust for China, but like the retail sales print, it handily topped estimates. Cumulative fixed asset investment for 2022 slowed to 5.1%. The surveyed jobless rate in December ticked lower to 5.5%.
Slower global growth may weigh on Chinese factory activity going forward, although the prospects for the global economy have improved of late.
Exports fell almost 10% in December, a dubious encore from November’s 8.7% drop, even as it was smaller than the decline expected by economists. China posted a record trade surplus in 2022.
Tuesday’s figures, had they come in as poorly as anticipated, wouldn’t have moved any needles. They were expected to be bad and, again, everyone is looking ahead to purportedly brighter days. The remarkable beats had the potential to bolster sentiment further although I’d suggest they were perhaps too good, in the sense that markets will harbor a bit of healthy skepticism above and beyond that normally associated with the numbers out of Beijing.
The PBoC on Tuesday injected CNY504 billion via reverse repos ahead of the holiday. That was the most since January of 2019.
Also, China said the country’s population fell in 2022. It was the first drop in more than six decades.
Economies of shrinking populations do not drive global growth. “Everyone” keeps waiting for China to come back online and drive global growth like they have for the past 20 years. It is likely that China has reached a new paradigm and will not be the growth engine everyone is looking for. Also population expectations (even before the likely multiple (tens of?) millions of COVID deaths) is for China’s population to decline to 800 million by the end of the century. It’s unlikely the CCP is still in control of China by then.
@Hopium
I can only hope (but don’t expect) my remaining lifetime may exceed that of CCP control of China. [My being a genuine relic of the 50s…]
I think China’s true 4Q22 GDP is significantly lower than the official figures. Deeper slowdown then implies a larger rebound in 1H23. Longer-term growth prospects look increasingly dour, as the mantle of Chinese exceptionalism is dented by property crisis, Covid crisis, and soon debt crisis. Much of the domestic and foreign money flowing into Chinese stocks is just in it for a trade. Being a long-term investor in Chinese mega-tech where the government has controlling “management shares” feels too credulous.
Right. I had Chinese stock that had previously done very well. Sold it. The idea of hanging on to it felt absolutely unacceptable. I simply do not trust China in its current form. I believe they’ve “evolved” to their old-fashioned, 1949 totalitarian ways. I believe the passage of time will only reveal more clearly that it is so.
As I read the actions of China’s leadership and their posture in relationship to the world, the group of 7 that run the country fundamentally serve only themselves. I believe Xi and the leadership discard truth when they speak to the world. I believe they perceive themselves in opposition to all political constructions in the world that are not communist. I believe their affection for income from western countries arises from the power it enables, not from any affection for any western countries or peoples.
I’ve heard numerous voices online that call out China’s risks in the face of Covid-19, and also, certainly, the assessments of their expected population decline. Of course, the Seven Ogres that run the country aren’t exempt from opinions about their oppressive, near-sighted, and self-serving leadership. But there’s another storm brewing under the radar that will potentially be a more immediate challenge to the leadership.
Apparently, China is running out of fresh water. They have only a proportion of the freshwater needed to maintain the health of the population on an ongoing basis. But because they consume so much fertilizer and pesticide for use on the limited supply of farmland they have in the south, their supplies of freshwater are being spoiled and cannot be used for consumption. Furthermore, most of the population is in the north, which is largely lacks fresh water.
I imagine the Seven Ogres who run the country will divine some solution, at least for the purposes of public information consumption. But I reckon they’ll have to pull rabbits out of their collective hats if they want to keep the government on the same track. Whatever they do, they’re going to run out of options eventually. The solution will likely have to be quite radical and probably costly. Maybe they’ll turn seawater into freshwater?