China trade, spending rebound dulled by zero-Covid uncertainty

China’s trade and domestic consumption are unlikely to make a robust comeback in the second half as uncertainties including Beijing’s zero-Covid policy persist for the world’s second-biggest economy, experts say.

Pinpoint Asset Management president and chief economist Zhang Zhiwei said falling international demand will significantly slow China’s exports as expectations for Western economies worsen.

“In the past month, investment banks around the world have downgraded their forecasts for economic growth in the United States and Europe, which will likely slow China’s exports,” Zhang said.

“In the first half of the year, China’s main problem was supply chain issues, while in the second half it will likely become the issue of [decreasing] demand, and the increase in trade might not be strong enough to become the main engine of China’s economic growth.”

Analysts also argued that the uncertainties of Covid-19 measures will continue to loom over domestic consumption, which is still significantly weaker than pre-pandemic levels, despite some recovery.

“Consumption and the whole service sector are still constrained by Covid-19 [control] measures, and people’s incomes are affected as well,” Zhang said.

He added that people were becoming more risk averse and less willing to travel or go to crowded public places – changes in behaviour that will work against a consumption recovery.

Peng Peng, executive chairman of the Guangdong Society of Reform, a think tank connected to the provincial government, said the pandemic remained the biggest uncertainty, followed by the Russia-Ukraine conflict and US-China trade.

“It is hard to end the pandemic completely, so it will be hard to allow the borders to be completely open,” Peng said.

Source: South China Morning Post