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Signs of economic downturns in Shanghai and Guangdong are especially troubling, considering the outsized role they play in China’s overall economy.
Deliverymen wearing protective suits carry bags of food at the gate of a residential community in Shanghai, China, Monday, April 11, 2022.
New variables both within and outside of China in 2022 have placed the country’s economy under new pressure. In the first quarter, its economic growth rate was only 4.8 percent, which was 0.7 percentage points lower than the annual economic growth target of 5.5 percent, indicating that China will face challenges in stabilizing economic growth this year.
Judging from the economic performance of various sectors in the first quarter, there have been some noteworthy risk signals in the country’s domestic economy. Among them, the Yangtze River Delta and the Pearl River Delta, the two largest regional economic pillars in China, have shown signs of slowing down in economic growth.
According to the data released by the Shanghai Municipal Bureau of Statistics, the GDP of Shanghai in the first quarter of 2022 was 1 trillion renminbi, a year-on-year increase of 3.1 percent. From January to February, the city’s economic operation began rather smoothly, yet in March due to the obvious impact of the COVID-19 pandemic, the growth rate of some economic indicators slowed down. In the first quarter, the added value of Shanghai’s industrial enterprises above the designated size increased by 3.9 percent year-on-year, 8.0 percentage points lower than the growth rate from January to February. The total sales of goods increased by 2.0 percent, a 4.1 point drop in the growth rate. The total investment in fixed assets increased by 3.3 percent, and the growth rate dropped by 9.3 percentage points. Meanwhile, the total retail sales of consumer goods changed from an increase of 3.7 percent in January to February to a decline of 3.8 percent in the first quarter. The total import and export of goods increased by 14.6 percent, and the growth rate was 7.4 percentage points lower than that in January-February.
On the other hand, according to data from the Guangdong Provincial Bureau of Statistics, the GDP of Guangdong in the first quarter was 2.85 trillion RMB, a year-on-year increase of 3.3 percent. The added value of industries above the designated size was about 980 billion RMB, a year-on-year increase of 5.8 percent. Fixed asset investment increased by 6.2 percent year-on-year; total retail sales of consumer goods went up 1.7 percent year-on-year; and total import and export of goods rose by 0.6 percent year-on-year. In terms of finance, in the first quarter, Guangdong’s local general public budget revenue was about 350 billion RMB, a year-on-year increase of 1.4 percent. Local general public budget expenditure has increased by 8.7 percent.
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In the Chinese economy, the two provinces of Shanghai and Guangdong have a unique and important position.
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Shanghai is not only highly crucial in China’s urban economy, but also leads the Yangtze River Delta region as well. In 2021, Shanghai’s GDP was 4.3 trillion RMB while China’s national GDP was 114.4 trillion RMB. The total GDP of the 41 cities in the Yangtze River Delta region was 27.7 trillion RMB, accounting for 24.2 percent of the national GDP.
There are 24 cities in China with a GDP exceeding 1 trillion RMB, and one-third of them are in the Yangtze River Delta (Shanghai, Suzhou, Hangzhou, Nanjing, Ningbo, Wuxi, Hefei, and Nantong). Shanghai, one of the most internationalized cities in China, also functions as the country’s center of international economy, finance, shipping, and trade. In addition, the city also proposes to build a global science and technology innovation center.
Guangdong is China’s largest province in terms of economic scale. Its GDP in 2021 was 12.43 trillion RMB, an increase of 8.0 percent over the previous year. In terms of sub-regions, the GDP of the core area of the Pearl River Delta accounted for 80.9 percent of the provincial total, while the eastern and western parts, as well as the northern ecological development area accounted for 6.2 percent, 7.0 percent, and 5.9 percent respectively.
The Pearl River Delta region is also the main body of the Guangdong-Hong Kong-Macao Greater Bay Area. In 2021, the total economic volume of the Greater Bay Area was about 12.6 trillion RMB. The region is home to 25 of the world’s top 500 companies, and it has over 60,000 high-tech enterprises, most of which are located in the Greater Bay Area. As of the end of 2021, there are five cities with a GDP measured in trillions in the Guangdong-Hong Kong-Macao Greater Bay Area.
It is precisely because of the important positions of Shanghai and Guangdong in China’s economy that signs of a downturn in these regions in the first quarter this year are worthy of attention. These two provinces represent the development of the Yangtze River Delta and the Pearl River Delta, respectively, to a considerable extent. If there are issues in their economies, it is a warning sign that China’s twin pillars in the most economically developed coastal areas will not be able to support the whole nation’s economy. If this happens, there will undoubtedly be a huge negative impact.
Looking back at the economic development of Shanghai and Guangdong in the first quarter of this year, the impact of the pandemic is clearly seen. In Guangdong, this was mainly due to the COVID-19 outbreak in Shenzhen in March. Shenzhen acted quickly, and after locking down for a week, the outbreak has been brought under control and the city reopens subsequently.
The situation in Shanghai is much more dire. The city was completely closed off in April and many parts still remain under lockdown well over a month later. Based on the economic scale of Shanghai in 2021, the average daily GDP of the city is about 11.8 billion RMB, and the average monthly GDP is about 360 billion RMB. If the lockdown of Shanghai continues, its economy will be enormously affected.
It should also be pointed out that with the current measures and policies against COVID-19, various areas have also seen the systematic suspension of many economic activities, especially the shutdown and interruption of logistics systems. This, in turn, has obstructed normal economic flows. This situation is still quite severe, where localized shocks in the economy are spreading or spilling over to other regions through obstruction of transportation and logistics.
As COVID-19 continues to hit Shanghai, the authority’s goal of “dynamic clearing” still faces major challenges. However, judging from the pressures China’s economy is facing this year and the development tasks it is currently undertaking, the country needs to pay more attention to economic growth in its balancing of pandemic control and the economic goal. As emphasized by China’s Central Economic Work Conference at the end of last year, “stabilizing the macroeconomy is not only an economic issue but also a political one.”
He Jun is partner, director of China Macro-Economic Research Team, and senior researcher at ANBOUND, a multinational independent think tank. His research field covers China’s macro-economy, energy industry, and public policy.