China economy grows at slowest pace in 50 years outside Covid as population shrinkage signals long-term decline

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Jack Barnett

China’s economy is growing at the slowest pace since the 1970s, barring the pandemic, due to tough zero Covid restrictions hitting spending, figures out today reveal.

The world’s second biggest economy grew three per cent in the three months to December compared to the same period in 2021, beating the consensus forecast of just 1.6 per cent growth.

Despite the upside surprise, a big fall in consumer spending dragged headline expansion lower.

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Retail sales slumped 1.8 per cent in the quarter to December, again beating analysts’ bets, but still weighing on output.

Separate data today also revealed China’s population shrank for the first time since 1961.

The world’s most populous country had 1.41175bn people at the end of last year, compared with 1.41260bn a year earlier, the National Bureau of Statistics said on Tuesday, a 850,000 decline.

China’s one-child policy –introduced in 1979 and raised to a two child-policy in 2015, leading to a short jump in birth rates – coupled with higher living costs and a widening middle class has disincentivised people from having kids.

Beijing’s policy resulted in gender selective births in which couples prioritised having boys over girls. That has now tipped the gender balance toward men, narrowing opportunities to have children. Uncertainty over Beijing’s future birth rules has also put people off starting or widening their family.

Over the past few years, policymakers have tried to incentivise couples to have kids by offering tax reliefs and better parental leave.

The drop in population raises questions about whether China can continue to clock in more than five per cent annual GDP growth rates over the coming years.

Experts also think India will surpass the country’s population count in the next few years.

China’s economy is being choked by a surge in Covid-19 cases (Photo by Anthony Kwan/Getty Images)

China is now grappling with a short term hit to its economy from a sudden and sharp surge in Covid-19 cases after Beijing dismantled pretty much all restrictions at the tail end of last year.

A rapid spread of the virus is likely to result in workers staying at home, shoppers shunning high streets and factories being shuttered, choking economic activity.

“While not as bad as feared, activity at the end of 2022 was still depressed, leaving plenty of upside as disruption from the reopening wave of infections eases,” Julian Evans-Pritchard, senior China economist at Capital Economics, said.

However, today’s better than expected data signal the Chinese economy has withstood the increase in Covid-19 cases caseload onslaught reasonably well and that output could motor ahead in the coming year after the initial wave of Covid-19 subsides.

“The economic hit from secondary outbreaks in regions that have already weathered the major exit waves should be smaller considering that immunity levels will be higher among the general population,” Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics, said.