In downtown Nanjing, China, a fishmonger sold far more ribbon fish than usual for Lunar New Year family reunions two weeks ago. A florist in a seedy mall south of the city sold more roses.
But a lamp vendor a few steps away at the mall has not noticed any recovery in sales. And at an Infiniti dealership on the outskirts of Nanjing, customer visits have increased by 20 or 30 percent, but have not yet translated into additional car sales.
“The economic impact of the epidemic is continuing to some extent, but we expect things to get better this year,” said Edith Xu, the dealership’s marketing manager, on Thursday.
Two months after China abruptly abandoned its strict “zero Covid” policy and let the virus sweep through its population with deadly effects, the country’s economy has gradually recovered. Consumers are spending again after a long pause during lockdowns in Shanghai last spring and in many Chinese cities in late autumn. Factories and ports are running smoothly as the end of citywide lockdowns has resolved the disruptions that have plagued global supply chains for the past three years.
Still, weaknesses remain, and a hoped-for post-pandemic “revenge spending” rush has yet to materialize. Domestic flights, tourism spending and subway usage are all up sharply from last year. But they haven’t reached 2019 before the pandemic started.
China’s cabinet, the State Council, is banking on a revival in consumer spending but hedged that bet by promising more economic stimulus at a meeting on Jan. 28. The cabinet said major infrastructure projects planned last year, when the economy was hitting bottom, should go ahead. Small businesses continue to receive a variety of tax breaks.
The cabinet also promised further measures to support the sale of cars and other large items. China recovered quickly from the global financial crisis in 2009, in part through drastic tax cuts on car and home appliance purchases.
“The greatest potential of the Chinese economy lies in the consumption of its 1.4 billion people,” Premier Li Keqiang said in a statement after the cabinet meeting.
The world is watching. Many investors and economists expect China to do significantly better than the 3 percent growth rate it achieved last year. But virtually nobody expects a rebound like the country’s 8.1 percent growth in 2021 as it quickly recovered from a 76-day lockdown in Wuhan earlier in the pandemic.
Covid-19 in China
The Chinese government’s decision to abandon its restrictive “zero Covid” policy in late 2022 sparked an explosive Covid outbreak.
The International Monetary Fund forecast last Monday that the Chinese economy will grow by 5.2 percent this year. Investors have already bet heavily on a recovery.
On the Shanghai and Shenzhen stock markets, shares of large companies are up 18 percent from lows in late October. They made the gain despite a modest sell-off on Friday as some traders worried about the strength of China’s recovery.
“The next step up may require better economic data,” said Larry Hu, an economist at Macquarie Securities.
The question marks hanging over China’s economy revolve around demand: How much of the country’s vast output of goods and services will consumers in China and abroad buy? At the end of last year, exports to the United States and the European Union collapsed as high inflation eroded the purchasing power of businesses and individuals.
Real estate remains one of the biggest concerns in China. The construction sector represents a quarter to a third of the entire country’s economic output, including steel, cement and the construction of new housing.
Years of borrowing from developers, homeowners and speculators led to a slow-motion crash that began in the fall of 2021 and is still not over. Many would-be homeowners are still nervous after hundreds of thousands of families who had prepaid for apartments were caught with unfinished homes when several dozen developers failed in late 2021 and last year.
New home sales fell last month compared to the same period early last year. The weak sales of apartments, in turn, weighed on the demand for furnishings.
Ying Yongxiang, the manager of a lamp and luminary shop in Nanjing, is still waiting for customers to come back. “Our company’s sales have not changed significantly since the epidemic policy change,” he said.
Box office receipts rebounded during the recent week-long Lunar New Year holiday compared to the same holiday last year.
Ren Xuejie, 25, said he could hardly remember the last time he went to the cinema as he mostly stayed at home last year due to Covid restrictions.
“Now that there aren’t many epidemic restrictions, I might go to the cinema more often this year,” he said while waiting for the screening of a Chinese animation film at a cinema in Nanjing, a city of 8 million people in east-central China , which used to be the capital of the country.
While nationwide Lunar New Year box office receipts rose sharply from a year earlier, they were still 13.6 percent below a record set in early 2021 during the same holiday. Back then, China experienced a spate of spending after appearing to have defeated Covid with the lockdown in Wuhan.
The cinema industry is one of many industries left with lasting scars from the pandemic and the “zero Covid” policy. The pandemic has forced the closure of nearly a third of cinemas in China since 2020.
Last year “was a really tough year for us — I feel like we worked two or three times harder,” said Yi Li, general manager of Appotronics, a maker of laser displays and film projectors in Shenzhen, a city next to Hong Kong. “We are happy that life is getting back to normal.”
China’s cities are also bogged down with a large number of quarantine rooms, Covid testing booths and laboratories and other investments the central government has forced them to make that cannot easily be used for other purposes. Jinan, capital of east China’s Shandong Province, announced last month that it was converting 650 rooms in a recently built quarantine center into low-cost housing for skilled factory workers in an adjacent industrial park.
In contrast, China’s huge factory sector appears to have weathered December’s rapid outbreak of Covid very well.
China is turning 650 boxy rooms built for Covid quarantines into low-cost housing for workers in a Jinan industrial zone. The housing is opposite a Geely electric car factory.Credit…Keith Bradsher/The New York Times
Fette Compacting is a leading German manufacturer of machines and systems for tableting pharmaceutical chemicals. Within days in December, the virus swept through four-fifths of the workforce at the Nanjing factory and offices. But none of the 140 or so workers became seriously ill and all recovered quickly, said Andreas Risch, the managing director of the company’s China operations.
In view of the strong demand for pharmaceuticals, Fette Compacting delivered almost twice as many machines as usual in December, said Risch. Nearby companies that supply sheet metal and other components for the machines have also been able to deliver on time during the outbreak.
But the economic boost for China from this kind of spending is likely to be temporary. And with exports uncertain, local governments short on cash for construction projects and the real estate sector struggling, the Chinese economy is most dependent on continued spending by the country’s consumers, said Daniel Rosen, partner at Rhodium Group, a New York-based consulting firm .
“Epic household consumption is required now,” he said.
Li You contributed to the research.
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