Increasing risks to Chinese growth

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PMI* surveys show a clear deterioration of the Chinese economy in March. Averaging the indices calculated by Caixin and the National Bureau of Statistics of China (NBS), the services PMI fell from 50.4 to 44.4. The manufacturing PMI fell less, from 50.3 to 48.8. The tightening of health restrictions thus appears to be having a noticeable impact on activity. However, the economic slowdown is much less severe than in the spring of 2020 and is mostly in the service sector. Industry is also showing signs of weakness, but the impact of the restrictions has been mitigated by the implementation of “health bubbles”, which limit plant closures and allow for the maintenance of minimal activity.


The Chinese government does not seem to want to deviate from its “zero Covid” policy despite the high contagiousness of the Omicron variant, raising the question of whether there could be a strong slowdown in growth in the coming months. Frequently updated data (mobility, transportation, real estate transactions, etc.) show that activity remains very disrupted at the beginning of the second quarter, in a context where an increasing number of cities are under restrictions. As of April 11, 45 cities have implemented a total or partial lockdown, affecting nearly 373 million people, or a quarter of the population. These cities represent more than 40% of China’s GDP**.
This environment poses a significant threat to the government’s growth target, which has been set at “around 5.5%”. New measures to support activity should therefore be announced soon, as recent statements by the authorities suggest.


* PMI: Purchasing Managers Index. PMIs are confidence indicators that summarize the results of surveys conducted among business purchasing
managers. A score of more than 50 indicates positive sentiment in the sector concerned (manufacturing or services).
** Nomura data.

The opinion expressed above is dated April 15, 2022 and is subject to change

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