Xi Jinping estimates that China’s GDP will have grown by at least 4.4% in 2022. But Covid misery looms

Hong Kong
CNN
—

According to Chinese leader Xi Jinping, China’s economy grew by at least 4.4% in 2022, a number much stronger than many economists expected. But the current Covid wave could hamper growth in the coming months.

China’s annual GDP is expected to surpass 120 trillion yuan ($17.4 trillion) last year, Xi said in a televised New Year’s Eve speech on Saturday. That means growth of more than 4.4%, which is a surprisingly robust number.

Economists had widely expected growth to collapse to a rate of between 2.7% and 3.3% for 2022. The government had maintained a much higher annual growth target of around 5.5%.

“China’s economy is resilient and has good potential and vitality. Its long-term fundamentals remain unchanged,” Xi said in his speech. “As long as we are confident and constantly strive for progress, we will be able to achieve our goals.”

China’s economy has been hit by widespread Covid lockdowns and a historic real estate downturn over the past year. Policymakers have vowed to aim for a turnaround in 2023. They are betting that the end of zero-Covid and a raft of real estate support measures will revive domestic consumption and boost growth.

But an explosion of Covid infections, sparked by the abrupt easing of pandemic restrictions in early December, is clouding the outlook. The country is battling its biggest ever Covid outbreak.

Last week, Beijing announced it would end quarantine requirements for international arrivals from January 8, a major step towards reopening its borders.

The sudden end to restrictions caught many in the country unprepared and put a huge strain on the healthcare system.

The rapid spread of infections has kept many people indoors and emptied shops and restaurants. Factories were forced to shut down or scale back production because workers fell ill.

Key data released on Saturday showed factory activity in the country contracted at the fastest pace in almost three years in December. The official purchasing managers’ index (PMI) for manufacturing fell to 47 last month from 48 in November, according to the National Bureau of Statistics.

It was the biggest drop since February 2020 and also marked the index’s third straight month of contraction. A value below 50 indicates that activity is declining.

The non-manufacturing PMI, which measures activity in the service sector, fell to 41.6 last month from 46.7 in November. It also marked the lowest level in nearly three years.

“The next few months would be tough for China and the impact on Chinese growth would be negative,” said Kristalina Georgieva, executive director of the International Monetary Fund, in an interview aired by CBS News on Sunday.

“The impact on the region would be negative. The impact on global growth would be negative.”

Analysts also expect the economy to get off to a rocky start in 2023 – with a likely contraction in the first quarter as rising Covid infections dampen consumer spending and disrupt factory activity.

But some are predicting the economy will recover after March as people learn to live with Covid. Many investment banks are now forecasting China’s growth to exceed 5% in 2023.