Three weeks after Xi Jinping, China’s top leader, tried to reinvigorate China’s flagging economy by abruptly abandoning its tough pandemic restrictions, he sounded an optimistic note in his annual New Year’s address. “The Chinese economy has strong resilience, great potential and great vitality,” he said.
But that optimism is hard to find in downtown Guangzhou, the commercial hub of southern China. Nearly three years of “zero COVID” measures have crushed businesses. The streets are lined with closed shops and workshops. The walls are covered not with “job hunting” posters, but with notices of entrepreneurs putting their businesses up for sale. Roads and alleys once crowded with migrant workers are now virtually empty.
China’s rollback of its COVID-19 restrictions in early December was meant to help places like Guangzhou. But the chaotic approach contributed to a tsunami of infections that swept the nation, overwhelming hospitals and funeral homes. In many industries, truck drivers and other workers quickly fell ill, temporarily reducing staff and slowing operations.
Today, in the face of an unpredictable – and uncontrolled – epidemic and financial uncertainty, people and businesses are spending cautiously, suggesting that the road to recovery will be uneven and painful.
China also faces broader challenges beyond its borders. The global economy is slowing down, driven by high inflation, an energy crisis and geopolitical unrest. As US and European consumers tighten their budgets, China is increasingly facing the double shock of falling demand, both at home and abroad.
Weak spending is further squeezing the already very low, if any, profit margins of many small private companies that drive the Chinese economy.
In Guangzhou, Tony Tang, owner of a fifth-floor workshop that makes women’s clothing, said his sales fell by two-thirds last year. The competition between small factories in China and abroad is fierce, which has lowered the wholesale price he can charge for an unbranded women’s jacket from US$14.00 to US$11.30 each .
Mr. Tang’s workforce has shrunk from 30 to 10 people, but there is no shortage of manpower. When he needed a worker to help him sew an order, he walked around the corner with a handmade cardboard sign and hired one within minutes, for a sixth less than a year ago.
The problem, according to Mr. Tang, is the lack of orders. His workshop has “a lot of workers, but we have no work to do”, he said.
Contraction of factory activity
Chinese factory activity contracted further in December as fast-spreading infections immobilized workers, stalled deliveries and dampened demand, according to a survey of manufacturers released by the government on Saturday. For service industries like restaurants, the same survey found business was nearly as bad as it was at the start of 2020, during the near-nationwide lockdown that followed the city’s first outbreak of COVID-19. Wuhan. Restaurants and other businesses closed last month, with customers staying home to avoid infection or because they were sick.
“The outbreak has had a big impact on business production and demand, staff attendance, as well as logistics and distribution,” the National Bureau of Statistics said in a statement that accompanied the release of the data. of the investigation.
The manufacturing sector had already seen a decline in November, when many cities and regions across China imposed lockdowns on residents in a futile attempt to contain outbreaks. Car dealerships are overflowing with unsold cars. Stores hardly need to order more for their shelves when they are already full of unsold goods.
But while many cities and provinces are in the throes of deadly epidemics that have silenced once-bustling streets, in other places there are early signs that economic activity is picking up. In a few cities in northern China like Beijing, which have seen widespread outbreaks that have since peaked, people are going out again these days.
More trips
The lifting of quarantine rules has helped boost air ticket sales ahead of the Lunar New Year holiday, which will take place at the end of the month. Removing burdensome COVID-19 restrictions, such as daily PCR tests on people and imported goods, has saved businesses and workers time and money.
Xu Zeqiang, a truck driver in Yangjiang, a city in southeastern China that is a hub for the production of knives and scissors, said he and his driving partner can now make a round trip from Yangjiang to the port of Shenzhen, 320 km away, in one day, instead of two or three days.
“In the past, we could be stopped for PCR test results and health code checks. Now it is no longer necessary, you can come and go anytime,” he said.
Many European manufacturers in China have been forced to operate with half their usual staff for two to three weeks, which has affected production somewhat, said Klaus Zenkel, president of the South China branch of the chamber of commerce. . As a precaution against blockages, many businesses had stockpiled spare parts in warehouses before the COVID-19 wave and relied on these to keep operating.
But to save costs, a few small suppliers of specific components shut down early for the Lunar New Year holiday, which begins on Jan. 21. “Everyone managed to keep going one way or another, to keep the damage to a minimum,” Zenkel said.
The damage that “zero-COVID” has inflicted on China’s once unbeatable appeal as a manufacturing hub may be hard to undo.
Lockdowns and border closures have slowed or disrupted shipments of goods and prevented many companies from sending buyers to factories. Some global retailers, seeing a risk in overreliance on China, have looked to other countries for supplies. Walmart, for example, plans to increase its imports from India to US$10 billion a year by 2027.
Even Chinese exporters are trying to diversify.
In Yangjiang, Velong Enterprises, a Chinese maker of knives, grill thermometers and other kitchenware for Walmart, IKEA, Target, Carrefour and other retailers, is expanding into Cambodia, Vietnam and India. It has reduced its workforce in Yangjiang from 1,700 to 1,200 through attrition and is considering potential factory sites from Mexico to Turkey, said Jacob Rothman, co-founder and co-CEO.
Companies like Velong realize cost savings when venturing overseas. The company pays its workers in Cambodia half as much as those in Yangjiang.
But China’s strengths in industrial prowess and manpower, even amid a raging epidemic, are hard to beat.
A fifth of the remaining workers at the Velong factory in China are now on sick leave. But the company was able to avoid missing deliveries by hiring temporary workers from among the large number of Yangjiang workers with knife-making experience, said Iven Chen, the company’s other co-founder and co-CEO. .
Boost growth
The Communist Party has pledged to stimulate domestic demand to revive growth. But it will be hard to convince people to spend after three years of discontinuous activity and punitive lockdowns. Many Chinese workers are now looking to replenish their savings, even as the Lunar New Year holiday approaches, a time when families are used to splurging.
“The overall wages are quite low, you can’t make a lot of money,” said Gong Shuguang, a garment worker in Guangzhou who plans to stay in the city for the holidays instead of returning to his home. hometown in Sichuan Province for a family reunion.
He lost two months’ salary during a fall COVID-19 lockdown.
“I want to find another job to do,” he said late last month. I have worked here for seven or eight years and this year is the worst. »
This article was originally published in the New York Times