In downtown Nanjing, China, a fishmonger sold a lot more ribbon fish than usual for Lunar New Year family gatherings two weeks ago. A florist in a run-down shopping mall on the south side of the city sold more roses.
But a lamp vendor a few steps away in the mall has seen no recovery in sales. And at an Infiniti car dealership on Nanjing’s edge, customer visits have jumped 20 or 30 percent, but have not yet translated into extra car sales.
“The economic impact of the epidemic lingers in some ways, but we estimate that things will get better this year,” Edith Xu, the marketing manager for the dealership said on Thursday.
Two months after China abruptly abandoned its stringent “zero Covid” policies and let the virus sweep through its population with deadly effect, the country’s economy has begun to recover. Consumers are spending again after taking a long pause during lockdowns in Shanghai last spring and in many Chinese cities in late autumn. Factories and ports are running smoothly, as an end to citywide lockdowns has resolved the disruptions that bedeviled global supply chains over the past three years.
Yet weaknesses remain, and a hoped-for binge of post-pandemic “revenge spending” has not yet materialized. Domestic air travel, tourism spending and subway usage are all up sharply from a year ago. But they have not yet matched 2019, before the pandemic began.
China’s cabinet, the State Council, is betting that consumer spending will revive, but hedged that bet by promising continued economic stimulus at a meeting on Jan. 28. The cabinet said that large infrastructure projects planned last year, when the economy was on its knees, should go ahead. Small businesses will continue to receive a variety of tax breaks.
The cabinet also promised further measures to help sales of cars and other big-ticket items. China bounced back quickly in 2009 from the global financial crisis partly by sharply cutting taxes on purchases of cars and household appliances.
“The greatest potential of the Chinese economy lies in the consumption by the 1.4 billion people,” Premier Li Keqiang said in a statement after the cabinet meeting.
The world is watching closely. Many investors and economists expect China to fare considerably better than the 3 percent growth rate that it eked out last year. But practically no one expects a rebound like the country’s 8.1 percent growth in 2021, when it recovered rapidly from a 76-day lockdown in Wuhan at the start of the pandemic.
Covid-19 in China
The decision by the Chinese government to cast aside its restrictive “zero Covid” policy at the end of 2022 set off an explosive Covid outbreak.
The International Monetary Fund predicted last Monday that the Chinese economy would expand 5.2 percent this year. Investors have already bet heavily on a recovery.
On the Shanghai and Shenzhen stock markets, the shares of large companies are up 18 percent from a low at the end of October. They have managed that gain despite a modest sell-off on Friday, when some traders worried about the strength of China’s recovery.
“The next leg up may take better economic data,” said Larry Hu, an economist at Macquarie Securities.
The questions marks hovering over the Chinese economy are about demand: How much of the country’s enormous output of goods and services will consumers in China and abroad buy? Late last year, exports to the United States and the European Union plunged as the buying power of businesses and individuals was pinched by high inflation.
Real estate remains one of the biggest worries in China. The construction sector represents a quarter to a third of the entire country’s economic output, including steel, cement and the fitting out of new homes.
Years of significant borrowing by developers, homeowners and speculators led to a slow-motion crash that began in the autumn of 2021 and still has not ended. Many would-be homeowners are still nervous after hundreds of thousands of families who had prepaid for apartments were caught with unfinished homes as several dozen developers failed in late 2021 and through last year.
Sales of new apartments dropped last month compared with the same period early last year. Weak sales of apartments in turn hurts demand for home furnishings.
Ying Yongxiang, the manager of a lamp and light shop in Nanjing, is still waiting for customers to start coming back. “Our business’s sales have not seen much of a change since the epidemic policy was shifted,” he said.
Cinema box office receipts rebounded during the recent, weeklong Lunar New Year holiday compared with the same holiday last year.
Ren Xuejie, 25, said he could hardly remember the last time he went to a cinema, as he mostly stayed home last year because of Covid restrictions.
“Now that there are not many epidemic restrictions, I might go to the cinema more often this year,” he said as he waited for the screening of a Chinese animation movie at a cinema in Nanjing, a city of 8 million in east-central China that used to be the country’s capital.
While nationwide Lunar New Year box office receipts were up sharply from a year ago, they were still down 13.6 percent from a record achieved during the same holiday in early 2021. That was when China enjoyed a flurry of spending after seeming to have vanquished Covid with the lockdown in Wuhan.
The cinema industry is one of many industries with lasting scars from the pandemic and “zero Covid” policies. The pandemic forced the closing of nearly a third of China’s cinemas since 2020.
Last year “was a really tough year for us — I feel like we worked two or three times harder,” said Yi Li, the chief executive of Appotronics, a laser display and movie projector manufacturer in Shenzhen, a city adjacent to Hong Kong. “We are excited about lives going back to normal.”
China’s cities are also stuck with vast numbers of quarantine rooms, Covid testing booths and labs, and other investments the central government forced them to make that cannot easily be put to other uses. Jinan, the capital of eastern China’s Shandong Province, announced last month that it was converting 650 rooms at a recently built quarantine center into low-cost housing for skilled factory workers at an adjacent industrial park.
By contrast, China’s huge factory sector seems to have weathered the rapid outbreak of Covid in December very well.
Fette Compacting is a leading German manufacturer of machines and equipment for turning pharmaceutical chemicals into tablets. Over just a few days in December, the virus swept through four-fifths of its work force at its factory and offices in Nanjing. But none of the roughly 140 workers fell seriously ill and everyone recovered quickly, said Andreas Risch, the managing director of the company’s China’s operations.
With demand strong for pharmaceuticals, Fette Compacting used overtime to deliver nearly twice as many machines in December as usual, Mr. Risch said. Nearby companies supplying sheet metal and other components for the machines were also able to make deliveries on schedule throughout the outbreak of infections.
But the economic boost for China for that kind of spending is likely to be temporary. And with exports uncertain, local governments low on money for construction projects and the real estate sector struggling, the Chinese economy depends most on sustained spending by the country’s consumers, said Daniel Rosen, a partner at the Rhodium Group, a New York advisory firm.
“Epic household consumption right now is needed,” he said.
Li You contributed research.