China 2022 Economic Report - H1

Executive Summary

• Driven by a quick recovery from the initial 2020 outbreak and a +29.9% increase of exports in 2021, the Chinese economy achieved +8.1% growth in 2021.
• However, the situation is worsening since the fall of 2021. The Government work report issued in March 2022 recognized a “triple pressure”: shrinking demand, supply shocks and weakening expectations.
• As China sticks to its “zero-Covid” strategy and continues refusing foreign vaccines, the economic activity is hindered. Major restrictions to mobility are disrupting supply chains, affecting industrial activity and exports. Private consumption is repressed and overall service sector’s performance remains sluggish.
• In April 2022, the urban unemployment rate (which does not include migrant workers) rose to 6.7% across 31 of the country's largest cities. Unemployment among the young is reported at 18.2%, a historical record – leading Premier Li Keqiang to recognize that "the employment situation is complex and severe".
• Stimulus measures are being taken. But attempts to mitigate the economic impact of the zero-Covid strategy will deepen structural problems. In particular, infrastructure investment will further build up debt and massive employment measures through SOEs will degrade the profitability and competitiveness of those companies. Besides, loosening the realestate policy – as it has been done in various cities – will jeopardize the deleveraging process initiated in 2021 and will inflate again the real estate bubble.
• According to surveys carried out by Foreign Chambers of Commerce, 23% of the members of the European Chamber of Commerce in China would be considering to moving part of their investments to a third country; 52% of US firms in China have already postponed or reduced their investments; 47% of the members of the German Chamber of Commerce and Industry would rethink their activities in China and one in eight German companies would consider leaving the country.
• Consequently, growth forecasts are being revised downwards from the growth target of 5.5% set by the Government: the IMF lowered its forecast to 4.4% in March, Natixis to “below 4%” by end of April and UBS to 3% on May 24th.