China’s economy likely contracted last quarter: Beige Book

CHINA’S manufacturing, services and property sectors all weakened sharply in the fourth quarter of 2022 due to Covid disruptions, resulting in a potential contraction in the economy in the final months of the year, a private survey showed.

Indexes measuring profits, sales and employment at manufacturing and services companies slumped in the last three months of 2022 from the previous quarter and a year ago, China Beige Book International (CBBI) said on Monday (Jan 2). The results are based on a survey of 4,354 businesses conducted last quarter. 

Metrics for the property sector, including transactions and prices, plunged close to all-time lows, CBBI said.

The figures imply that China’s gross domestic product likely contracted in the fourth quarter from a year ago in real terms and grew only 2 per cent for the whole year of 2022, CBBI, a provider of independent economic data, said in its report. 

Economists surveyed by Bloomberg predict growth slowed to 2.9 per cent in the fourth quarter and reached 3 per cent for 2022.

“With the ongoing Covid tidal wave, investment sliding to a 10-quarter low, and new orders continuing to get battered, a meaningful first-quarter recovery is increasingly unrealistic,” said Derek Scissors, chief economist at CBBI.

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China’s abrupt lifting of Covid restrictions in early December has fuelled a surge in infections across the country, adding more uncertainty to the economy’s outlook. 

The faster-than-expected reopening means first-quarter economic activity will also likely be disrupted, although some economists see an increasing possibility of a faster recovery once infection waves peak.

High frequency indicators last week suggested early signs of a rebound in activity in cities such as Beijing, where infections likely already peaked.

The CBBI survey showed businesses remaining in distress in the fourth quarter. Companies obtained 46 per cent of their loans from non-bank lenders in the final three months of 2022, up from 33 per cent in the third quarter. 

The rise in so-called shadow banking suggests firms are struggling to qualify for bank credit lines, with the cost of borrowing climbing to the highest in more than a decade, according to the CBBI report. BLOOMBERG