By He Jun*
New variables inside and outside China in 2022 have placed the country’s economy under further pressure. In the first quarter, its economic growth rate was only 4.8%, 0.7 percentage points below the annual economic growth target of 5.5%, indicating that it will face challenges in stabilizing economic growth this year. Judging by the economic performance of various sectors in the first quarter, there were noticeable signals of risk in the country’s domestic economy. Among them, the Yangtze River Delta and the Pearl River Delta, China’s two biggest regional economic pillars, have shown signs of slowing economic growth.
According to data released by the Shanghai Municipal Bureau of Statistics, Shanghai’s GDP in the first quarter was RMB 1 trillion, a year-on-year increase of 3.1%. From January to February, the city’s economic functioning started quite well, but 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 industrial enterprises above designated size rose 3.9 percent year on year, 8.0 percentage points lower than the growth rate from January to February. Total goods sales rose 2.0% and the growth rate fell 4.1 percentage points. Total capital investment increased by 3.3% and the growth rate fell by 9.3 percentage points. At the same time, total retail sales of consumer goods fell from a 3.7% increase from January to February to a 3.8% drop in the first quarter. Total merchandise imports and exports increased by 14.6% and the growth rate was 7.4 percentage points lower than in January-February.
On the other hand, according to data from the Guangdong Provincial Bureau of Statistics, Guangdong’s GDP in the first quarter was RMB 2.85 trillion, a year-on-year increase of 3.3 percent. The added value of industries above the designated size was around RMB 0.98 trillion, a year-on-year increase of 5.8%. Investments in fixed assets increased by 6.2% year-on-year; total consumer goods retail sales up 1.7% YoY; and total imports and exports of goods rose 0.6% year-on-year. In terms of finance, in the first quarter, Guangdong local general government budget revenue was about RMB 0.35 trillion, a year-on-year increase of 1.4 percent. Expenditure from the general budget of local administrations increased by 8.7%.
In the Chinese economy, the two provinces of Shanghai and Guangdong occupy a unique and important position.
Shanghai is not only very crucial in China’s urban economy, but also leading the Yangtze River Delta region. In 2021, its GDP was 4.3 trillion RMB while the GDP of all of China was 114.4 trillion RMB. The total GDP of the 41 cities in the Yangtze River Delta region was RMB 27.7 trillion, or 24.2% of the national GDP. There are 24 cities in the country with a GDP over 1 trillion RMB, and there are 8 cities in the Yangtze River Delta (Shanghai, Suzhou, Hangzhou, Nanjing, Ningbo, Wuxi, Hefei, Nantong) accounting for one-third . Shanghai is also one of the most internationalized cities in China, which also functions as the center of the country’s economy, finance, shipping and international 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 RMB 12.43 trillion, an increase of 8.0% from the previous year. In terms of sub-regions, the GDP of the central area of the Pearl River Delta accounted for 80.9% of the province, while the eastern and western parts, as well as the northern ecological development zone accounted for 6.2 %, 7.0% and 5.9% 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 RMB 12.6 trillion. There are 25 of the world’s top 500 companies in the region, and it has more than 60,000 high-tech companies, most of which are located in the Greater Bay Area. At the end of 2021, there were 5 cities with a GDP of trillions in the Guangdong-Hong Kong-Macau Greater Bay Area, with a combined GDP of 10.56 trillion RMB.
It is precisely because of Shanghai and Guangdong’s important position in the country’s economy that their signs of a slowdown in the first quarter of this year are noteworthy. These two provinces respectively represent the development of the Yangtze River Delta and the Pearl River Delta to a large extent. If there are problems in their economy, it would mean that the two pillars of China in the most economically developed coastal areas will not be able to support the economy of the whole nation. If this happens, there will undoubtedly be a huge negative impact.
Looking at the economic development of Shanghai and Guangdong in the first quarter of this year, the impact of the pandemic is clearly visible. In Guangdong, this is mainly due to the COVID-19 outbreak in Shenzhen in March. While Shenzhen acted quickly and after being shut down for a week, the outbreak was brought under control and the city subsequently reopened. The situation in Shanghai is very serious. It has been a month since various urban areas have been locked down, and the city was completely sealed off in April. Based on Shanghai’s economic scale in 2021, Shanghai’s average daily GDP is about RMB 11.8 billion, and the average monthly GDP is about RMB 360 billion. If Shanghai’s lockdown continues, its economy will be hugely 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, in particular the shutdown and interruption of logistics systems. This, in turn, resulted in the obstruction of the flow of economic elements. This situation is still quite severe, where localized shocks in the economy spread or spread to other regions through the obstruction of transport and logistics.
As COVID-19 continues to hit Shanghai, the authority’s “dynamic clearing” goal still faces major challenges. However, judging from the pressures the Chinese 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 balance between pandemic control and the economic objective. As China’s Central Economic Work Conference pointed out late last year, “stabilizing the macroeconomics is not only an economic issue but also a political one.”
*He Jun, Partner, Director of the Chinese Macroeconomic Research Team and Senior Researcher. His research area covers China’s macro-economy, energy industry and public policies.