China's 2022 economic growth one of the worst on record, post-pandemic policy faces test

• 2022 GDP grows 3.0%, far below official target.
• Dec factory output, retail sales weak but beat expectations.
• Population shrinks for the first time since 1961.

BEIJING: China's economic growth in 2022 slumped to one of its worst levels in nearly half a century as the fourth quarter was hit hard by strict COVID curbs and a property market slump, raising pressure on policymakers to unveil more stimulus this year.

The quarterly growth and some of the December indicators such as retail sales beat market expectations, but analysts noted the overall economic impulse across China remained weak and highlighted the challenges facing Beijing after it abruptly lifted its "zero-COVID" policy last month.

Gross domestic product (GDP) grew 2.9% in October-December from a year earlier, data from the National Bureau of Statistics (NBS) showed on Tuesday, slower than the third quarter's 3.9% pace. The rate still exceeded the second quarter's 0.4% expansion and market expectations of a 1.8% gain.

Beijing's sudden relaxation of stringent anti-virus measures has boosted expectations of an economic revival this year, but it has also led to a sharp rise in COVID cases that economists say might hamper near-term growth. A property slump and weak global demand also mean a rebound in growth will be heavily reliant on shell-shocked consumers.

"China's 2023 will be bumpy; not only will it have to navigate the threat of new COVID-19 waves, but the country's worsening residential property market and weak global demand for its exports will be significant brakes," Harry Murphy Cruise, an economist at Moody's Analytics, said in a note.

For 2022, GDP expanded 3.0%, badly missing the official target of "around 5.5%" and braking sharply from 8.4% growth in 2021. Excluding the 2.2% expansion after the initial COVID hit in 2020, it's the worst showing since 1976 - the final year of the decade-long Cultural Revolution that wrecked the economy.

"Activity data in December surprised broadly to the upside, but remains weak, particularly across demand-side segments such as retail spending," Louise Loo, senior economist at Oxford Economics, said in a note.

The "data so far supports our long-held view that China's reopening boost will be somewhat anaemic at the beginning, with consumer spending being a key laggard in the initial stages," Loo said.

A Reuters poll forecast growth to rebound to 4.9% in 2023, as Chinese leaders move to tackle some key drags on growth - the "zero-COVID" policy and a severe property sector downturn. Most economists expect growth to pick up from the second quarter.

A strong rebound in China could temper an expected global recession, but it could also cause more inflationary headaches worldwide just when policymakers are starting to get a handle on record price surges.

Reopening challenges

Asian shares dropped after the Chinese data, while the yuan skidded to a one-week low.

On a quarterly basis, GDP stalled, coming in at 0.0% in the fourth quarter, compared with growth of 3.9% in July-September, highlighting underlying weakness across many sectors.

Beijing's lifting of COVID curbs has seen businesses struggling with surging infections, suggesting a bumpy recovery in the near term.

"The ongoing 'exit wave' on the back of China's faster-than-expected reopening has taken a heavy toll on economic activity in recent months, due to surging infections, a temporary labour shortage and supply chain disruptions," economists at Goldman Sachs said, noting the annual contractions in output of both steel product and cement in December.

Factory output grew 1.3% in December from a year earlier, slowing from a 2.2% rise in November, while retail sales, a key gauge of consumption, shrank 1.8% last month after November's 5.9% drop.

Official data showed unemployment eased despite manufacturing and services activity getting squeezed by the spike in COVID infections. The nationwide survey-based jobless rate dropped to 5.5% in December from 5.7% in November.

China's top leaders have pledged to prioritise consumption expansion to support domestic demand and the broad economy this year, at a time when local exporters struggle in the wake of global recession risks. The central bank is also expected to steadily ease policy this year.

China is likely to aim for economic growth of at least 5% in 2023 to keep a lid on unemployment, policy sources said.

Property, population headwinds

China's property industry was among the biggest drags on growth. Investment in the sector fell 10.0% year-on-year in 2022, the first decline since records began in 1999, and property sales slumped the most since 1992, NBS data showed, suggesting that government support measures were having a minimal impact so far.

Authorities have rolled out a flurry of policies targeting homebuyers and property developers in recent weeks, to relieve a long-running liquidity squeeze that has hit developers and delayed the completion of many housing projects.

Adding to the challenges facing the economy and the government, China's population in 2022 fell for the first time since 1961, the NBS data showed, a historic turn that is expected to mark the start of a long period of decline in its citizen numbers and see India become the world's most populous nation in 2023.

"The population will likely trend down from here in the coming years. This is very important, with implications for potential growth and domestic demand," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"Going forward, demographics will be a headwind. Economic growth will have to depend more on productivity growth, which is driven by government policies."