The Political Bureau of the Communist Party of China holds a meeting to analyze the economic situation
The official Xinhua News Agency reported that Xi Jinping, General Secretary of the Communist Party of China, presided over a meeting of the Political Bureau of the CPC Central Committee on April 29 to analyze and study the current economic situation and economic work.
The meeting stated that due to the CCP virus epidemic and the Ukraine crisis, “the complexity, severity and uncertainty of the economic development environment have increased”, and “stabilizing growth, employment, and prices” are facing new risks and challenges. Therefore, the downward pressure on China’s economy continued to increase, and market expectations also weakened significantly.
Against this background, the CCP meeting is still emphasizing that “the epidemic must be prevented, the economy must be stabilized, and development must be safe”, and “strive to achieve the expected goals of economic and social development throughout the year.”
According to Chen Xing, chief analyst of Zhongtai Macro, this means that Beijing still has expectations for this year’s economic growth target and will not give up easily.
GDP can’t be eaten, but it can show the “superiority of the system”
The CCP’s zero policy has caused long-term damage to the economy, and even if Shanghai lifts its lockdown, it is not expected that the economy will be repaired as quickly as it did after it was first hit by the CCP virus in 2020. This time is really different, the supply chain has shifted and capital and executives are leaving China.
“Voice of America” reported on April 29 that as the Chinese government still adheres to the zero-epidemic prevention policy, it is increasingly difficult to achieve the 5.5% economic growth target this year.
Shanghai is the city with the highest GDP in China and the place with the highest concentration of foreign businesses. The status quo in Shanghai mirrors the woes of China’s business environment, denting investor confidence and hurting China’s overall business prospects.
According to data from consultancy Capital Economics, China’s economy grew by 0.7% in the first quarter from the previous quarter, almost half of the 1.3% claimed in the official GDP report. Actual production and consumption figures are expected to be even more dismal in April after Shanghai’s total lockdown.
“Global manufacturers are already reassessing the political and economic risks of doing business in China,” said William Reinsch, chairman of international business at the Center for Strategic and International Studies, a think tank.
Bloomberg columnist Shuli Ren, who focuses on Asian markets, wrote in an article on April 28 that Chinese President Xi Jinping has asked to ensure that GDP growth this year exceeds that of the United States, which may not be difficult to achieve.
Ren Shuli said that the quarterly GDP released by China is calculated based on the production method and does not need to consider the end demand for goods and services. In contrast, to calculate real GDP growth, advanced economies use a range of price indicators involving both input and output. Also, China uses a single deflator. At a time of major changes in global prices, China’s statistical approach can severely distort its real GDP growth rate. The US GDP deflator is much higher than China’s.
If beating the U.S. numerically (whether it’s Olympic medals or GDP growth) is what Beijing cares about most, given rising job uncertainty and rising global inflation, Chinese people must feel their living standards are falling.
Ren Shuli wrote that Beijing may soon understand that the GDP target cannot be eaten as a meal, but it expresses a determination to prove that the CCP’s one-party system is superior to Western democracies, and the United States is going downhill.
Li Qilin, director and chief economist of Hongta Securities Research Institute, said in an article published on April 29 that from the conference draft, the Beijing authorities not only want to control the epidemic, but also want to do a good job in economic work, taking into account epidemic prevention and control and economic development, and use this method to better reflect the CCP’s “system superiority.”
Li Qilin believes that the CCP’s official statistics show that the year-on-year growth rate of domestic GDP in the first quarter of this year was 4.8%. If estimated according to the 5.5% growth rate target, the cumulative year-on-year GDP growth rate in the next three quarters will reach 5.7%. According to the distribution of quarterly GDP in the past five years, the year-on-year growth rate of GDP in the second, third and fourth quarters should reach 5.28%, 6.25% and 5.6% respectively. Considering that the domestic epidemic continued in April and the long-tail effect brought about by the epidemic, the second quarter should not reach 5.28%, which means that the third and fourth quarters may be more than 6%. Therefore, increasing efforts to stabilize growth is the focus of follow-up policies.
Shanghai is an important hub for the production and supply of global automobiles, semiconductors and electronic products. Last week, Tesla’s Shanghai plant, which had been out of production for three weeks, resumed some production, but the factory had to comply with complex and costly epidemic prevention measures, including a closed-loop management model in which regular workers remain at the factory and keep production lines running.
The Voice of America reported that these reopened factories still face the risk of production interruptions due to shortages of raw materials. Truck drivers from across China are required to comply with strict quarantine rules, which have led to a shortage of truck capacity, causing delays and driving up prices.
Shanghai, home to the world‘s largest container port, has experienced severe unloading delays due to labor shortages. The total number of container ships at the port and sharing anchorage with nearby Ningbo stood at 230 as of last Wednesday, up 35 percent from a year earlier, according to Bloomberg Shipping data.
Tech giants, including Apple Inc. (AAPL), rely heavily on parts assembly at factories near Shanghai. More than 160 Taiwanese companies operating in and around Shanghai have suspended production, including suppliers to Tesla and Apple, according to data from Taiwan’s financial regulator last week.
Apple warned on Thursday (April 28) that China’s zero-epidemic measures could drag down sales by as much as $8 billion in the current fiscal quarter, leaving the company only seeing supply chains in the first three months of the year. Frustration again after improvement.
U.S.-China Business Council spokesman Doug Barry said that supply chain disruptions have prevented factories from fully reopening and producing in a timely manner, and U.S. companies operating in China are facing unprecedented challenges.
Barry said that many American companies were surprised by the determination of the Chinese authorities to stick to the zero policy, and they were also pessimistic about the prospect that the epidemic prevention measures will continue for a long time.
The Chinese government’s blockade of Shanghai has accelerated manufacturers’ efforts to reduce their reliance on Chinese supply chains. Rising labor costs in China and strained trade relations between the U.S. and China were already prompting foreign manufacturers to move from Chinese factories even before the coronavirus outbreak.
Nick Vyas, director of global supply chain management at the USC Marshall School of Business, said, “Shanghai, as a core node in the supply chain, has really disrupted global operations. Some responsible companies have begun to diversify their operations strategies. Discuss and identify other ways of doing business, and many other companies will follow.”
After supply chains have been disrupted in succession in the past few years, hopes of a global supply chain recovery are all but dashed by the CCP’s anti-epidemic policies. Experts say more companies around the world are prioritizing supply chain stability rather than cost as they have in the past few decades.
“The supply chain of the future must find ways to balance resilience and cost, and sustainability must be factored in,” Vias said. “Diversification and integration will provide greater returns to shareholders in the long run.”
According to the “Washington Post” report, the director general of the World Trade Organization, Ngozi Okonjo-Iweala, said in Washington on Tuesday (April 26) that the supply chain congestion caused by the CCP virus epidemic has persuaded global manufacturers to remove supply chains from China spreads to more countries.
Iweala called the adjustment of the supply chain “re-globalization”, and China will pay for it, which will benefit the manufacturing and economic globalization of more developing countries, such as Vietnam, Cambodia and Bangladesh.
Vietnam’s total import and export trade volume in March this year reached a record 67.37 billion US dollars, an increase of 38.1% month-on-month, of which exports increased by 48.2% month-on-month.
Data show that in the first quarter of this year, Vietnam’s exports of mobile phones and related electronic products such as computers and accessories have approached the export level of last year’s half year. International brands such as Samsung, Intel and Apple have increased their exports in Vietnam after the epidemic. business layout.
The meeting of the Political Bureau of the Central Committee of the Communist Party of China on April 29 also proposed to strengthen infrastructure construction and give play to the traction and driving role of consumption in the economic cycle; and under the condition that the general tone of “housing, not speculating” remains unchanged, it is required to support rigid and improved housing demand .
About 344 million people in China are under lockdown, accounting for a quarter of the country’s population, according to investment bank Nomura Securities. The lockdown has turned China’s 25 million-strong Shanghai into a ghost town, kept farmers in the northeastern granary stuck at home during the spring ploughing season, and shut down many factories, shops and restaurants across the country.
The New York Times quoted Chen Zhiwu, an economist at the University of Hong Kong, as saying, “This not only makes many private enterprises unable to survive, but also accelerates people’s migration overseas, which quickly reduces people’s willingness to invest.”
He pointed out, “Once the people lose confidence in the future of the country, it will be difficult for the economy to recover from the impact of the new crown zero policy.”
Chinese companies face rising prices and weakening demand both at home and abroad, which limit their willingness to invest. Real estate has been a reliable growth engine for China’s economy in the past, but after several years of prosperity, the industry is now struggling with many maturing debts that cannot be repaid. “Dynamic zero” anti-epidemic policies have limited consumer spending, preventing them from spending money on travel, dining and other services.
The New York Times reported on April 29 that Xi convened a meeting of senior Communist Party officials on April 26 to discuss plans to accelerate infrastructure investment. Infrastructure investment has been the mainstay of China’s previous efforts to combat economic slowdowns, but returns on investment have often been very low and have left many local governments saddled with debt.
Some cities are trying to take more aggressive and swift action to restart their economies and stimulate consumption. On Thursday (April 28), the wealthy and large port cities of Shenzhen and Ningbo began distributing shopping and dining coupons worth 800 million yuan to the public.
In this regard, Xu Sitao, chief economist of Deloitte’s Beijing office, said that the practices of Ningbo and Shenzhen may be replicated across the country, but “the best policy is not to build an extra subway, but to focus on consumer spending. .”
Shen Jianguang, director of the China Chief Economist Forum and vice president of JD Finance, wrote in the Financial Times on April 26 that the decline in household consumption under the impact of the epidemic has become a major economic risk. Data from the Bureau of Statistics of the Communist Party of China shows that the growth rate of China’s fixed asset investment and industrial added value in March was lower than that of January-February, but the growth rate of the nominal total retail sales dropped the most, dropping sharply to -3.5% year-on-year in the month, hitting a record high in May 2020. A month-to-month low. In terms of categories, except for food, beverages, and pharmaceuticals, most categories fell synchronously. The growth rate of gold and silver jewelry, clothing, home appliances, petroleum products, cosmetics, daily necessities, and automobile retail sales fell by more than 10 percentage points from January to February; in addition, Catering revenue fell to -16.4% year-on-year, reflecting the huge impact on contact-focused consumption.
Regarding the presentation of real estate at this meeting, Chen Xing, chief analyst of Zhongtai Macro, explained that the most noteworthy thing at this meeting may be the change in the presentation of real estate policies. Under the policy of adhering to the policy of “housing, not speculating,” the meeting mentioned “supporting local governments to improve real estate policies based on local realities”, which means that city-specific policy measures are more flexible and flexible, and there is room for the relaxation of real estate in some areas. policy space.
Chen Xing said that in fact, many provinces and cities have recently introduced relaxation measures at the real estate policy level, and even some first- and second-tier cities have joined. This meeting provides policy guarantees for such measures. In addition, at the end of December last year, the Politburo meeting of the Communist Party of China mentioned the need to “support reasonable demand for housing”, and this meeting further clarified the meaning of reasonable demand for housing, “supporting rigid and improving housing needs.” And this meeting also mentioned that it is necessary to “optimize the supervision of pre-sale funds for commercial housing”, which will also ease the financial constraints of real estate companies.
Chen Xing’s team expects that the real estate market may improve under the pressure of steady growth, and residents may make a comeback with increased leverage.
However, since the house is used for living, if people do not want to live in China and immigrate overseas, this will become the biggest crisis in the Chinese real estate market.
Deutsche Welle Chinese website reported on April 21 that for some wealthy and middle-class families, the high-pressure zero-clearing policy made them decide to take action to immigrate to other places. The Financial Times interviewed more than a dozen Chinese immigration consultants who said they had received a surge in immigration enquiries recently. WeChat data also shows that since April, the number of searches for the keyword “immigration” has surged nearly sevenfold.
Free Asia reported on April 19 that there is a wave of people fleeing from the city of Shanghai, and immigration inquiries have increased sharply.
According to a Tencent report, Baidu shows that the top Chinese provinces and cities in search of immigration popularity are Shanghai, Jiangsu, Guangdong, and Beijing. The search volume for “immigration” from Shanghai residents has topped the list for the past two months. Australia, the United States, and Canada are the most searched immigration countries by Chinese users. However, after the “immigration search tide” came out, major platforms no longer provide indexes and search trends for this keyword.
Two immigration companies in Shanghai consulted by Radio Free Asia mentioned that the number of immigration applications has increased several times.
“Once the lockdown is over, expats in all positions will be looking for new jobs outside China,” said the director of a headhunting firm in Shanghai that deals with the financial industry, Reuters reported on April 27.
A survey by the American Chamber of Commerce last month found that more than 80 percent of U.S. companies in China said China’s zero-deal policy had hurt their ability to attract and retain foreign workers. The survey also showed that most U.S. companies have largely frozen their investment plans in China this year.
The British Chambers of Commerce said last week that the risk of doing business in China was at its highest level since the coronavirus outbreak.
Due to increasing internal and external uncertainties, the draft of the CCP meeting emphasized that “it is necessary to effectively manage and control key risks and maintain the bottom line that systemic risks do not occur.”
The meeting made a request that “leading cadres” at all levels should “take responsibility for their actions” and “seek truth and be pragmatic” to prevent all kinds of “black swan” and “grey rhino” incidents from happening.
In this regard, Li Qilin explained that on the one hand, the epidemic has caused great disturbance to economic growth. In order to prevent the epidemic, the local government closed the city for static management of one or two cases, which had a great impact on local economic growth; on the other hand The Russian-Ukrainian shock caused the price of raw materials to rise significantly, and the pressure of imported inflation intensified, which made the operating costs of small and medium-sized enterprises increase. Some raw materials are directly and closely related to agriculture, which has affected spring ploughing and normal agricultural production.