Everything seems to be going well. At the end of a tumultuous year fueled by protests from people fed up with pandemic restrictions, China decided to relax its previous zero-covid policy.
Looking at GDP growth alone, Beijing may have reason to be complacent — the Middle Kingdom’s economy grew by 4.5 percent in the first quarter of 2023, according to the local National Bureau of Statistics, outperforming by 0.5 percentage points from earlier. Analysts’ forecasts polled by Reuters. The data gives hope for a significant improvement after a dismal previous year – economic growth in 2022 was the lowest since 1976.
China’s GDP is starting to rebound.
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The reality is not so colorful
Analysts note that China’s economic situation is not so good after a more thorough analysis.
The problems are best reflected in data on the economic situation of the industry just released. The PMI reading for April leaves no doubt – despite the lifting of pandemic restrictions, the Chinese economy is still struggling. This indicator was 49.2 points, which means a decrease of 2.7 points and a descent into decline (limit 50 points). This is also the weakest result of the year. Bloomberg described it as a “big surprise”.
China’s PMI has fallen significantly recently.
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What is the reason? “The rapid recovery in output in the first quarter is due to market demand and the absence of a high base effect,” Zhao Qingge, an analyst at the local statistics office, argued in Reuters.
Manufacturing sector About 18 percent of the workforce is employed there. Its weak performance calls into question the momentum the local economy should be gaining, according to Beijing’s expectations.
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That the situation is dire is evidenced by the nervousness of officials in Beijing. The Politburo, coordinated by President Xi Jinping, said in an official statement that “the current positive changes in the Chinese economy are primarily the result of recovery. Internal factors are not yet strong and demand is still insufficient“Economic transformation and modernization face new challenges, and promoting high-quality growth still has many difficulties and challenges to overcome,” it added.
Unemployment in China
These difficulties are not only the problems of the industry but also the growing challenge of unemployment. One in five Chinese city dwellers aged 16-24 are unemployed – a total of 11.6 million young people. This is the second worst result in the survey’s history. It may even mean a slowdown in the return to normal domestic demand, the engine of Chinese economic growth today.
“China’s post-Covid-19 recovery has lost some momentum, and political support is needed,” said Zhou Hao, chief economist at Gutoi Junan International Holdings Ltd., as quoted by Fortune.
Government intervention
This should be supported by the Foreign Trade Incentive Package. China’s State Council is encouraging domestic banks to prepare an offer to support the auto industry in overseas expansion. At the same time, they want to simplify the visa procedure for foreign business and increase the number of flights. Foreign missions were also asked to provide more support to small Chinese companies in entering foreign markets.
China is also likely to strike in the fight against youth unemployment. According to a CNN report, Guangdong, the richest Chinese province bordering Hong Kong, has proposed 300,000. Send youths who are unemployed for two or three years abroad. Officially, it will solve the problem of unemployment on one hand and improve the economy in rural areas on the other. However, unofficially, it is known that this could also solve another problem for Beijing – a significant part of the protesters at the end of 2022 are young people. Disbanding them will help curb public sentiment.
“If previous COVID-19 protests have revealed anything, large numbers of angry, well-educated youth in China’s cities could be a big problem for the ruling Chinese Communist Party,” said Alex Capri, a researcher at the Hinrich Foundation. told CNN.
Grzegorz Kowalczyk is a journalist at Business Insider Polska