The down wave

In a gloomy article, an Axios analyst of global markets documents just how dire China’s economy is today.

New data out Monday showed retail sales activity [in China] collapsed in April, with unemployment rising and exports and industrial production slowing sharply.

Retail sales fell 11.1% in April, compared to the prior year, with considerable declines in major categories like restaurant spending and auto sales (a total of zero vehicles were sold in Shanghai).

China’s surveyed unemployment rate rose to 6.1%, just shy of the high of 6.2% reported during the early days of the COVID outbreak in 2020.

Industrial and export activity decelerated to 4% and 3.9%, as lockdowns in key industrial hubs such as the Yangtze River delta — home to Shanghai — took their toll.

The bottom line: “The April activity data shows that the temporary disruption from the zero-COVID policy is more severe than expected, raising significant downside risk,” JPMorgan analysts wrote in a research note.

This is bad news for everyone. Like it or not, the engine of China’s economy has helped power the world for decades. China’s role in maintaining global supply chains can’t be exaggerated. Western auto makers for years have counted on robust car sales in China, where Buicks and Teslas and Audis (to name a few) can be seen everywhere in Shanghai, and to a lesser extent in Beijing. Most of these auto makers’ China manufacturing facilities have closed due to Covid (Tesla’s giga-factory in Shanghai is open after the company agreed to house all its workers at its factory premises).

Chinese leaders say Shanghai is opening up incrementally and could be back to normal at the end of this month. But the lockdown, for all intents and purposes, remains. A BBC reporter in Shanghai writes:

Although state media has blithely reported that the “hustle and bustle” is returning, it’s difficult to verify that.

Despite claims that the majority of residents are free to roam, anecdotal reporting on the ground is very different.

I am still confined to my home. Other members of the BBC team here, in various places, face similar restrictions.

Access to food and healthcare remains limited for some. Some shops are opening, but only “offline” business will resume initially.

For three decades the Chinese people and the CCP have enjoyed a Faustian bargain: the government will let you get rich if you mind your own business and don’t meddle in government affairs. The government will make sure GDP keeps growing and citizens will remain loyal and content. A censored Internet and CCP repression in distant provinces is a small price to pay for soaring economic growth. But now it’s China’s moment of truth. The Chinese people are fed up, putting up angry social media posts criticizing the zero-Covid policy, and as soon as the censors delete them more spring up. This is what the CCP dreads most: a population that could lose its confidence with the Party and threatens the government’s obsession with “harmony” and “stability.”

We aren’t going to see the population rise up to overthrow the CCP. We aren’t going to see a revolution. But as the economy’s down wave continues, the government will have to deal with an increasingly disillusioned and bitter public. Where this may ultimately lead is anyone’s guess, but at the moment I see no cause for optimism. The government must keep its bargain with the Chinese people or face growing discontent. And just a couple of years ago it seemed double-digit growth would continue for years, maybe for decades. How the mighty have fallen. Can the government pick up the pieces and lead the country back to its pre-pandemic prosperity? In the short term I remain skeptical. The breadth of this breakdown is simply too huge. I hope there is a full recovery because I love China, home to many of my dearest friends. But they, too, are angry and disillusioned with the CCP. People have long memories and they won’t soon forget the nightmare of the past few months. It might take years before the Party has regained their trust. If ever.

China has entered a new phase, one in which the people no longer see its government as infallible and invincible. Can they recover and carry on as before? No one knows, but as I said, I’m not optimistic.

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