Towards the end of the last year, there was quite a lot of speculation that China would see substantial growth in the near future. That was when the announcement came that officials would progressively lift all covid restrictions. The last of those restrictions were lifted last month, followed by a week-long holiday in which migrant workers traveled home to visit family.
Now that the factories have all fully restarted, all covid restrictions have been lifted, and China normalizes post covid, the “restart” seems to be somewhat modest. Preliminary data so far suggests that growth isn’t roaring back, despite most covid controls having been lifted for more than two months. Macroeconomic data has shown something of a mixed picture.
Tracking the rebound
Part of the effect can be something that was alluded to with the release of China’s Q4 GDP numbers. At the time, the economic performance in the Asian giant beat expectations handly, showing that the economy wasn’t as affected by the covid lockdowns as initially expected. That was seen as good news, naturally.
It also means that there was less space to rebound, setting a higher baseline for Chinese growth. Markets betting on a strong rebound in China were based on the perception that the Chinese economy has been much more affected in the last quarter.
Additionally, China is primarily an export country. Although the government has taken great pains to vitalize the internal economy, the conditions of the global economy still has a large impact on China. Meaning that a now more modest Chinese rebound will be tempered by slowing projections for the global economy as well.
What does the data say
Chinese data so far hasn’t pointed in a clear direction. For example, new yuan loans, one of the more recent figures released. Loans to businesses showed substantial growth compared to the prior year. But loans to consumers dropped sharply. That suggests businesses are doing better than average citizens.
But other data points to the reverse. A survey conducted by Nomura shows that road and subway traffic inside cities has returned to and exceeded pre-pandemic levels. But at the same time, freight transport is down from the prior year. Consumers are more active, but businesses are selling less volume.
Another way of interpreting this data is that businesses are taking on credit to expand ahead of anticipated increase in demand. And that the expected Chinese rebound simply hasn’t manifested, yet. Unemployment remains relatively high, and inflation relatively low, suggesting weakness in the domestic market.
On the global market, however, the yuan hitting a recent low suggests that global consumer demand is lackluster. The general sluggishness in the economy could prompt further loose policy from the PBOC and support from the government, which could eventually reinvigorate demand. But the fast rebound immediately following the lifting of covid sanctions seems to not have manifested.