With its tough Corona policy, China’s leadership has enraged the citizens and massively weakened the economy. The first loosening is now being announced. But numerous problems remain. There are no signs of a rapid upswing.
The sharpest slump in Chinese exports since the start of the corona pandemic more than two and a half years ago is fueling concerns about a global economic downturn. Exports fell 8.7 percent in November compared to the same month last year, according to data from the customs agency. This is the sharpest decline since February 2020. There had already been a decline in October, but it was much smaller at 0.3 percent.
The fall in exports is all the more astonishing given that foreign trade is usually booming in November in view of the approaching Christmas trade. China’s statistics agency blames the corona pandemic for the slump. The pandemic had “negative effects on the production and activities of some companies,” said the statistics office. Production has slowed and orders have fallen. According to experts, however, this is not the main reason why the relaxation of the Chinese corona policy that has just been announced should offer little reason for hope of a turnaround in the near future.
In addition to the tough corona lockdowns, the world’s second largest economy after the USA is also under pressure because of a real estate crisis. In addition, global trade is weaker because important customers such as the USA and Germany are suffering from high inflation, which is why consumers and companies are cutting back on spending.
Beijing has now relaxed some of the strict corona restrictions due to growing pressure from the population. The new guidelines of the National Health Commission (NHC) stipulate, among other things, that infected people with no or mild symptoms can “generally isolate themselves at home”. The country also wants to reduce the scope and frequency of PCR tests.
However, this does not mean that China’s economic problems have been solved. Exports are likely to contract even further in the coming quarters, says economist Julian Evans-Pritchard of Capital Economics. “They will see a limited boost from the easing of virus restrictions as they are no longer a major impediment to manufacturers’ ability to fill orders,” says Evans-Pritchard. “But the decline in global demand for Chinese goods will be of far greater significance.”
To boost the flagging economy, the government has also invested heavily in infrastructure, lowered interest rates, granted tax rebates and made it easier to buy real estate. However, the stimulus fizzled out due to the largest wave of corona infections that hit China at the same time since the pandemic began almost three years ago, and the extensive restrictions that followed. And even after the changes to the corona measures that have now been made, analysts remain skeptical that the stimulus measures will achieve quick results as it will take time before the pandemic controls are fully relaxed.
China’s economy grew by just 3 percent in the first three quarters of this year. This is well below the government’s annual target of around 5.5 percent. Analysts expect growth of just over three percent for the year as a whole. The World Bank even expects only 2.8 percent – after a whopping increase of 8.1 percent last year.
“In the medium term, China’s economy is still confronted with a structural downturn,” says an analysis by the bank. The World Bank experts see little chance for China to return to the rapid growth it has been accustomed to for decades: “Potential growth is on a declining trend that reflects unfavorable demographics, tepid production growth and increasing restrictions on a debt-driven growth model.”
