BOFA, ANZ, China Beige Book on Covid, growth slows

According to Derek Scissors, chief economist at research firm China Beige Book, China’s economy is “in trouble” – but it’s “not a serious problem”.

“We’re not looking at a total decline like China suffers in 2020,” Scissors told CNBC’s “Squawk Box Asia” on Tuesday. He is referring to how China’s economy shrinks by 6.8% year-on-year in the first quarter of 2020 as the country battles Covid-19.

On Monday, China posted better-than-expected GDP growth in the first quarter of 2022, although retail sales for March fell amid the ongoing Covid shutdowns in the mainland.

“The Chinese economy is struggling but it’s … not in serious trouble,” Scissors said, adding that Beijing may be prioritizing public health at the moment.

“What China has seen in Hong Kong, with Hong Kong doing very well with Covid until 2022 and then the aging population in Hong Kong being affected, that’s much more important to us,” he said. surname”. “From China’s point of view, the economy is not big but it is bearable and a Covid wave in the countryside would be unacceptable.”

Split on China outlook

Analysts are divided on the outlook for China’s economy as Beijing continues to pursue a strict zero-Covid strategy that has seen mass shutdowns imposed as the virus is discovered. infection case.

That contrasts sharply with the approach taken by many other countries, which have largely relaxed restrictions and switched to a “living with Covid” strategy.

According to ANZ’s Richard Yetsenga, the Chinese economy faces “fairly severe headwinds” in the current quarter, who said as the mainland continues to battle the most severe Covid wave since the outbreak First broadcast in 2020.

But once the matter is dealt with, China’s economy should return to “normalcy”, said the bank’s chief economist and head of research.

“There have been some indications that the government is aware of the risks here, there has been much talk of policy support,” Yetsenga said.

We are concerned that 2022 could be even more challenging than 2020…

Winnie Wu

China equities strategist, Bank of America Securities

Read more about China from CNBC Pro

However, economists at Bank of America reduced their forecast for China’s 2022 GDP growth from 4.8% to 4.2%. Officially, Beijing has established a GDP growth target of around 5.5% for 2022.

“We are concerned that 2022 could be even more challenging than 2020 for three reasons,” said Winnie Wu, China equities strategist at Bank of America Securities.

First, the current lockdown is widespread across the mainland – unlike 2020, when restrictions were concentrated in one province, Wu said. That has led to “widespread disruption” in transportation and logistics.

Next, the risk of prolonged shutdowns as the world enters its third year of Covid has reduced consumers’ willingness to spend offline, she added. Uncertainty around how long and when the next shutdown will take place has already begun to dampen long-term business confidence.

Finally, China’s export growth could suffer as supply chains outside the country normalize as other countries reopen. Before the pandemic, countries like India and Vietnam had benefited as companies opened stores there amid US-China trade tensions.

“Supply chain relocation, once the trend starts, will be very difficult to reverse,” Wu said.

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