China’s gross domestic product grew 4.8 percent year-on-year, up 4 percent in the last three months of 2021. On a quarterly basis, GDP grew by 1.3 percent. Analysts had forecast earnings of 4.4 percent year-on-year and 0.6 percent quarter-on-quarter as Covid cases rose, leading authorities to largely block Shanghai, the country’s economic hub. Retail sales, a consumer spending index, fell 3.5 percent in March – their first year-over-year decline since July 2020 and worse than the projected 1.6 percent drop – as authorities tightened restrictions on to deal with the worst coronavirus outbreak in the country in more than two years. In the same month, the official unemployment rate rose to 5.8%, its highest level since May 2020. The data will put more pressure on President Xi Jinping’s government, which has reaffirmed its commitment to a zero-sum Covid policy despite rising costs and unrest in the country’s largest cities. In March, the Shenzhen production hub was locked, and in the same month the northeastern city of Jilin also closed as part of an approach that has since spread to many other cities. The lockdowns came at a precarious time for China’s economy following a real estate debt crisis and a wider loss of momentum. The government has set a growth target of 5.5 percent by 2022, the lowest level in three decades. Fu Linghui, a spokesman for the National Bureau of Statistics, said the economy was “generally stable”, but noted Covid’s “frequent outbreaks” in China and an “increasingly serious and complex international environment”. “The country is facing recurring waves of pandemics in many places and its impact on the economy is growing,” he said. The data for the first three months will not record the full extent of recent events in Shanghai, which since late March has suffered the most severe lockdown in China in the entire city since the appearance of the coronavirus in Wuhan. Analysts at Nomura last week estimated that 45 cities, which account for about 40 percent of China’s GDP, were under full or partial lockdown and said the country was in “danger of recession.” Tommy Wu, chief economist at China at Oxford Economics, suggested that GDP growth of 4.8% “mainly reflects the growth seen in the official January-February figures before weakening economic activity in March”. He added: “The central government is now trying to balance minimizing disruption by controlling the latest wave of Covid infections, but the disruption is likely to last for weeks and burden activity in April and May, if not more.” In contrast to the sudden weakening of consumer spending, industrial production, which was the major driver of China’s initial recovery from the 2020 pandemic, added 5 percent year on year in March. Investments in fixed assets increased by 9.3% in the first three months of 2022 compared to the same period last year.

Even before the outbreaks of the highly contagious Omicron variant accelerated, China’s economy was hit by a real estate crisis centered on the heavily indebted Evergrande development company that spread across the real estate sector. As a sign of the prolonged effects of this crisis, new apartment dwellings fell by 20% in the first three months of the year. Steel and cement production fell by 6 and 12 percent, respectively, over the same period. In addition to the lower annual growth target, the government has also begun monetary easing, which included lowering critical lending rates for the first time since 2020 despite a previous push to reduce leverage. The People’s Bank of China cut its benchmark reserve requirement for banks by 25 basis points on Friday in a bid to bring liquidity to the financial system. Xi, who is seeking an unprecedented third term in office this year, has launched a “common prosperity” campaign designed to reduce inequality. But lockdown measures are now dominating the country’s economic trajectory and have sparked concerns about supply chain disruptions. Li Keqiang, China’s prime minister, has repeatedly warned of financial risks in recent weeks, following Xi’s warning in March of the need to minimize the economic impact of policies on Covid. The CSI 300 index of shares listed in Shanghai and Shenzhen fell about 1 percent on Monday after the announcement of the data. Banks were among the worst performers, as lenders faced the prospect that easing the policy to mitigate the financial blowdown of lockdowns could hurt profits. “We firmly believe that Chinese policymakers are eager to ensure that they achieve their development goals,” Jean-Charles Sambor told BNP Paribas Asset Management. Additional references by Hudson Lockett in Hong Kong and Maiqi Ding in Beijing Video: Evergrande: the end of the real estate boom in China