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Analysis

Warning signs in China's economic outlook as COVID-19 spreads

New variables both within and outside of China in 2022 have placed the country's economy under new pressure. In the first quarter, its economic growth rate was only 4.8%, which was 0.7 percentage points lower than the annual economic growth target of 5.5%, indicating that it will face challenges in stabilizing economic growth this year. Judging from the economic performance of various sectors in the first quarter, there have been some noteworthy risk signals in the country's domestic economy. Among them, the Yangtze River Delta and the Pearl River Delta, the two largest regional economic pillars in China, have shown signs of slowing down in economic growth.

According to the data released by the Shanghai Municipal Bureau of Statistics, the GDP of Shanghai in the first quarter was RMB 1 trillion, a year-on-year increase of 3.1%. From January to February, the city's economic operation began rather smoothly, yet in March due to the obvious impact of the COVID-19 pandemic, the growth rate of some economic indicators slowed down. In the first quarter, the added value of Shanghai's industrial enterprises above the designated size increased by 3.9% year-on-year, 8.0 percentage points lower than the growth rate from January to February. The total sales of goods increased by 2.0%, and the growth rate dropped by 4.1 percentage points. The total investment in fixed assets increased by 3.3%, and the growth rate dropped by 9.3 percentage points. Meanwhile, the total retail sales of consumer goods changed from an increase of 3.7% in January to February to a decline of 3.8% in the first quarter. The total import and export of goods increased by 14.6%, and the growth rate was 7.4 percentage points lower than that in January-February.

On the other hand, according to data from the Guangdong Provincial Bureau of Statistics, the GDP of Guangdong in the first quarter was RMB 2.85 trillion, a year-on-year increase of 3.3%. The added value of industries above the designated size was about RMB 0.98 trillion, a year-on-year increase of 5.8%. Fixed asset investment increased by 6.2% year-on-year; total retail sales of consumer goods up 1.7% year on year; and total import and export of goods rose by 0.6% year-on-year. In terms of finance, in the first quarter, Guangdong's local general public budget revenue was about RMB 0.35 trillion, a year-on-year increase of 1.4%. Local general public budget expenditure has increased by 8.7%.

In the Chinese economy, the two provinces of Shanghai and Guangdong have a unique and important position.

Shanghai is not only highly crucial in China's urban economy, but also leading the Yangtze River Delta region as well. In 2021, its GDP was RMB 4.3 trillion while the GDP of the whole of China was RMB 114.4 trillion. The total GDP of the 41 cities in the Yangtze River Delta region was RMB 27.7 trillion, accounting for 24.2% of the national GDP. There are 24 cities in the country with a GDP exceeding RMB 1 trillion, and there are 8 cities in the Yangtze River Delta (Shanghai, Suzhou, Hangzhou, Nanjing, Ningbo, Wuxi, Hefei, Nantong) accounting for one third. Shanghai is also one of the most internationalized cities in China, which also functions as the country's center of international economy, finance, shipping, and trade. In addition, the city also proposes to build a global science and technology innovation center.

Guangdong is China's largest province in terms of economic scale. Its GDP in 2021 was RMB 12.43 trillion, an increase of 8.0% over the previous year. In terms of sub-regions, the GDP of the core area of the Pearl River Delta accounted for 80.9% of the province, while the eastern and western parts, as well as the northern ecological development area accounted for 6.2%, 7.0%, and 5.9% respectively. The Pearl River Delta region is also the main body of the Guangdong-Hong Kong-Macao Greater Bay Area. In 2021, the total economic volume of the Greater Bay Area was about RMB 12.6 trillion. There are 25 of the world's top 500 companies in the region, and it has over 60,000 high-tech enterprises, most of which are located in the Greater Bay Area. As of the end of 2021, there are 5 cities with a GDP of trillions in the Guangdong-Hong Kong-Macao Greater Bay Area, with a combined GDP of RMB 10.56 trillion.

It is precisely because of the important position of Shanghai and Guangdong in the country's economy that their signs of a downturn in the first quarter this year are worthy of attention. These two provinces represent the development of the Yangtze River Delta and the Pearl River Delta respectively to a considerable extent. If there are issues in their economy, it would signify that China's twin pillars in the most economically developed coastal areas will not be able to support the whole nation's economy. If this happens, there will undoubtedly be a huge negative impact.

Looking back at the economic development of Shanghai and Guangdong in the first quarter of this year, the impact of the pandemic is clearly seen. In Guangdong, this is mainly due to the COVID-19 outbreak in Shenzhen in March. As Shenzhen acted quickly, and after locking down for a week, the outbreak has been brought under control and the city reopens subsequently. The situation in Shanghai is much dire. It has been a month since different urban areas are under lockdown and the city has been completely closed off in April. Based on the economic scale of Shanghai in 2021, the average daily GDP of Shanghai is about RMB 11.8 billion, and the average monthly GDP is about RMB 360 billion. If the lockdown of Shanghai continues, its economy will be enormously affected.

It should also be pointed out that with the current measures and policies against COVID-19, various areas have also seen the systematic suspension of many economic activities, especially the shutdown and interruption of logistics systems. This, in turn, has resulted in the obstruction of the flow of economic elements. This situation is still quite severe, where localized shocks in the economy are spreading or spilling over to other regions through obstruction of transportation and logistics.

As COVID-19 continues to hit Shanghai, the authority's goal of "dynamic clearing" still faces major challenges. However, judging from the pressures China's economy is facing this year and the development tasks it is currently undertaking, the country needs to pay more attention to economic growth in its balancing of pandemic control and the economic goal. As emphasized by China's Central Economic Work Conference at the end of last year, "stabilizing the macroeconomy is not only an economic issue but also a political one".

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