The Quagmire of Lockdowns, China's Economic Growth Rate at 4.8% (Comprehensive)

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China's retail sales (domestic demand) recorded negative growth. It is the first time in 19 months since August 2020 that the domestic sales growth rate has turned negative.

Consumption appears to have sharply cooled due to lockdown measures following the resurgence of COVID-19 and the overlapping Russia-Ukraine war. A red light has turned on for the Chinese leadership's economic growth target of 'around 5.5%' for this year.

Source: National Bureau of Statistics of China

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China's National Bureau of Statistics announced on the 18th that the first quarter gross domestic product (GDP) increased by 4.8% compared to the same period last year. This is far below this year's Chinese growth target of around 5.5%. Although it was higher than the 4.2% forecast by Bloomberg News, the COVID-19 lockdowns and the Ukraine situation are continuing into the second quarter, making it difficult to achieve this year's growth target.

The domestic demand was the factor holding back China's economy in the first quarter. China was the first major country in the world to emerge from the pandemic shock, thanks to its strong quarantine policy symbolized by 'Zero COVID.' Ironically, this time, the Chinese-style quarantine policy, commonly called 'Zero COVID,' became a hindrance.

In fact, China's retail sales showed a -3.5% year-on-year decline. The drop was larger than the expected -3.0%. The 6.7% increase over the two months of January and February helped to mitigate the decline. The retail sales growth rate peaked at 34.2% in March last year and then fell to 1.7% in December last year.

Domestic demand is a major foundation of China's economic growth. Last year, the contribution of domestic demand to China's GDP reached 65.4%. Domestic demand is a barometer of the Chinese economy. There are concerns that lockdown policies are leading to reduced income for small business owners and workers, thereby dampening consumption vitality.

Industrial production announced on the same day was recorded at 5.0%. Industrial production had increased by 7.5% in January and February, seemingly recovering from the shock caused by rising international raw material prices, but was hampered by the epidemic. Facility investment recorded 9.3%.

Recently, the Chinese government issued an emergency prescription to respond to the economic shock caused by the resurgence of COVID-19 by lowering the reserve requirement ratio (RRR) by 0.25% and supplying 530 billion yuan (about 102 trillion Korean won) in liquidity. Inside China, there is growing expectation that the People's Bank of China, the central bank, will lower the loan prime rate (LPR), which is effectively the benchmark interest rate, on the 20th.

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