BEIJING — Chinese leaders face pressure to shore up waning economic growth after Shanghai and other cities shut down to fight coronavirus outbreaks, threatening to disrupt global trade and manufacturing.

Growth slipped to 1.3% from the previous quarter in the first three months of 2022, from 1.4% in the last quarter of last year, official data showed on Monday. Year-on-year, a measure that may mask recent fluctuations, growth was 4.8%, down from 4% in the last quarter of 2021.

In a sign that the decline could be getting worse, retail sales in March fell 3.5% from a year earlier.

This month’s activity is expected to “be even worse,” Julian Evans-Pritchard of Capital Economics said in a report. “China’s economic performance is expected to remain lackluster in the near term.”

The ruling Communist Party, which has set a growth target of 5.5% this year, was already trying to reverse a recession that began in mid-2021. Pressure has mounted after a spike in infections last month prompted Beijing to suspend access to Shanghai, a city of 25 million, and other industrial hubs.

“Further impacts from lockdowns are imminent,” ING’s Iris Pang said in a report.

Forecasters say Beijing is using cautious, targeted stimulus instead of general spending, a strategy that will take longer to show results. Chinese leaders fear that too much spending or bank lending will drive up politically sensitive housing costs or that corporate debt will be dangerously high.

Meanwhile, China faces more headwinds from a potential slowdown in the European Union, a major export market, due to Russia’s war on Ukraine and rising oil and gas prices, according to Rajiv Biswas of S&P Global Market Intelligence.

It would “hit China’s manufacturing export sector,” Biswas said in an email.

The flow of industrial goods has been disrupted by the suspension of access to Shanghai, home to the world’s busiest port, and other industrial cities including Changchun and Jilin in the northeast. Global automakers and other manufacturers have reduced or halted production at Chinese factories.

The disruption “will weigh on activity in April and May, if not more,” Tommy Wu of Oxford Economics said in a report. This is “likely to have a significant impact on global supply chains”.

China’s latest infection numbers are relatively low, but Beijing is responding to its biggest outbreak since the pandemic began in 2020 with a “zero-COVID” policy that aims to isolate anyone who tests positive.

Consumer demand, a major economic driver, has been dampened by a government appeal to the public to avoid traveling during the February Lunar New Year holiday, normally a time of big spending on gifts, banquets and tourism.

Manufacturing output rose 6.5% in the quarter from a year earlier. Investment in factories, real estate and other fixed assets rose 9.3%, possibly reflecting easier credit.

This quarter, retail sales could fall 5.5% from a year ago, while factory output contracts 1.5%, according to Nomura economists Ting Lu, Jing Wang and Harrington Zhang .

“Global markets are underestimating China’s slowing growth,” which “is expected to ripple through the rest of the world,” they said in a report.

Regulators last week injected another 500 billion yuan ($80 billion) into the loan money pool by reducing the amount of deposits commercial banks are required to hold in reserve.

Shanghai has eased controls that confined most of its residents to their homes. But while some 6.6 million people were allowed out, most businesses remained closed.

The agency that manages the Port of Shanghai says operations are normal. But the companies say the volume of cargo they handle has fallen.

Shanghai is so important that a full month shutdown will subtract 2% from China’s annual economic growth, according to ING’s Pang.

“This loss will increase if the lockdown lasts longer,” Pang wrote.

Authorities also suspended access to Tianjin, a port and petrochemical hub east of Beijing, and Shenzhen, a financial and technology hub near Hong Kong. Other cities have closed businesses, told residents to stay home if possible, or imposed limits on movement.

Economists have warned that spring plantings by Chinese farmers who feed 1.4 billion people could be disrupted. This would hurt economic activity and stimulate demand for imported wheat and other foodstuffs, which could push up already high world prices.

China rebounded quickly from the 2020 pandemic, but activity weakened as tighter borrowing controls by property developers hit construction, which supports millions of jobs.

Investors are waiting to see what happens to one of China’s biggest developers, Evergrande Group. It has struggled since last year to avoid defaulting on $310 billion owed to banks and bondholders.


China National Bureau of Statistics (in Chinese):


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