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China's 'zero COVID' ambitions hamper economic recovery

Real consumption gains slow in October amid widespread pandemic curbs

Security personnel guard a residential compound in Beijing under lockdown over an outbreak of COVID-19. The Chinese capital is taking extensive steps to keep cases under control, especially with the Winter Olympics just months away.   © Reuters

BEIJING -- China's goal of eradicating the coronavirus within its borders is weighing heavily on its economy, as renewed restrictions in response to a surge in infections since October squeeze consumer spending.

China's nominal retail sales of consumer goods climbed 4.9% on the year in October, according to data published Monday by the National Bureau of Statistics. Year-on-year gains rose from 4.4% in September despite market projections for a drop, largely due to increased spending on gasoline and other fuel.

Fuel prices jumped nearly 30% last month, compared with a 17% increase in September.

"The rise in retail sales can be explained almost entirely by surging prices for fuel, like gasoline," said Takamoto Suzuki, manager of economic research at Marubeni (China).

But in real terms, retail sales of consumer goods advanced 1.9% on the year in October -- narrowing from the 2.5% gain in September -- as a sluggish recovery in income and strict coronavirus measures cast a pall over China's economy.

A total of 1,297 locally contracted, symptomatic cases have been confirmed in China since Oct. 19, according to its National Health Commission. The country has been under strict restrictions to curb the virus' spread since late October ahead of the Communist Party Central Committee plenum earlier this month, as well as the Beijing Winter Olympics in February.

Beijing has restricted residents of areas with any locally transmitted coronavirus cases, or anybody who has visited such areas in the last 14 days, from entering its limits. Two high-speed trains headed to the capital from Shanghai and Zhejiang Province were stopped en route on Oct. 28, after crew members were found to have been in close contact with a coronavirus patient, Chinese media reported. A total of 346 passengers and staffers were forced to disembark and quarantine.

The index of service production rose 3.8% on the year in October, though growth is still slow compared with the pre-pandemic rate of around 7%. Demand for transportation has plunged, as many people avoid traveling across provincial lines. Urban restaurants and entertainment facilities have also suffered, with growth in food industry revenues slowing to 2% on the year last month from 3.1% in September.

China's economy slowed as well at the beginning of the year and during the summer, when the government imposed travel restrictions in response to a resurgence in new infections. Real gross domestic product grew just 0.2% during the January-March quarter, as well as in July-September.

Based on China's vaccination records, each person in the country should have received an average of 1.7 coronavirus shots by now. Still, the government remains focused on preventing the coronavirus from spreading at home or entering in from abroad.

"Our medical resources are distributed unevenly, so the pandemic could quickly overwhelm certain areas," said a source familiar with the inner dealings of the Communist Party.

The pandemic is not the only threat looming over China's economic revival. The country's industrial output expanded 3.5% on the year in October, up slightly from 3.1% in September, thanks partly to demand for 5G-compliant smartphones. But production of energy intensive products like steel and cement has been sluggish, due to the government's efforts to combat climate change.

Government restrictions on real estate are a concern as well. Property investments jumped 7.2% on the year for the entire January-October period, but fell 5.4% for October alone, compared with a 3.5% decline in September.

Meanwhile, high commodity prices combined with these various restrictions are squeezing corporate earnings. This in turn has discouraged many businesses from hiring, resulting in a more-than-20% decrease in new urban employment on the year in October. Sluggish employment could threaten to weigh on consumer spending further.

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