Growth slows in China as Covid weighs heavily

China’s economy grew by just 3% last year, official data showed on Tuesday, well below government targets and one of the slowest rates since the 1970s.

Beijing had been targeting GDP growth of around 5.5% for 2022, already a marked reduction on 2021, when the economy grew by 8.4%. Excluding 2020, when the economy was rocked by the first Covid-19 outbreak, it was the weakest growth since 1976.

China has been hit hard by Beijing’s long-stand policy of zero-Covid. Stringent restrictions, including widespread rolling lockdowns and mandatory testing, affected both production and consumption for most of 2022.

The policy was abruptly abandoned in December, however, after unprecedented public protests, leading to a wave of infections.

But the fourth quarter was not as bad as feared. GDP growth slowed to 2.9% year-on-year, from 3.9% in the third quarter, but that was above consensus for growth of just 1.6%.

Also coming in above expectations was December’s retail sales and industrial production data. Retail sales fell 1.8% year-on-year, improving on November’s 5.9% decline and well above forecasts for -9.0%.

Industrial production grew by 1.3%, down on November’s 2.2% but sharply higher than the consensus expectations for growth of just 0.1%.

Michael Hewson, chief market analyst at CMC Markets UK, said: "The decision to drop the zero-Covid, while welcome, is likely to prompt an uneven recovery for the Chinese economy in the coming months.

"This is because of the unwelcome side effects of the inevitable explosion in infection rates and mortality in a largely unvaccinated population. [It] explains why December’s retail sales numbers were better than November, as people restricted their movements and bought online instead: online retail sales rose by 17.2%."

Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics, said: "We think the worst has passed for China’s economy in the fourth quarter. The Covid exit wave crested in big cities in December and probably many other regions since then.

"China’s reopening period is likely to see a moderate economic recovery starting as early as March, and from the second quarter onwards. We expect the People’s Bank of China to cut rates in March or April to boost private sector demand.

"The chief headwinds for GDP this year are falling exports on soft global demand and the weak property sector, which is set for a drawn-out recovery, even with additional support."