People's Bank of China survey shows weak business sentiment

China’s economic recovery is still challenged by weak business sentiment and shrinking industrial orders, according to a new survey, as economists warn mounting external challenges could derail a full recovery. A survey conducted by the People's Bank of China (PBOC) – China’s central bank – in the fourth quarter shows that business confidence and activity are still at low levels almost three years after the start of the coronavirus pandemic, indicating a bumpy recovery ahead. More than half of business owners claimed that the economy is cooling and the business climate getting weaker, according to the PBOC's poll of 5,000 entrepreneurs in the industrial sector. China’s leadership faces a daunting task to stabilize the economy, which has been hit hard by years of hardline Covid controls that were only dropped in a sudden policy shift in early December. The relaxation of zero-Covid has unleashed China’s worst wave of virus outbreaks to date.

The National Development and Reform Commission (NDRC) has urged officials from four regional economic centers – Beijing, Shanghai, Anhui and Guangdong – to step up stabilization efforts. “We must grasp the window of opportunity to ensure the use of policy and development financing tools to maximize workloads,” the NDRC said in an online statement. “We must strive for a good beginning for the new year.” The central bank survey also showed that two indices on export orders and entrepreneurs’ assessment of overall economic performance fell to the lowest level since the second quarter of 2020. The export order index dropped to 38.9 in the fourth quarter from 42.2 in the previous three months, and more than a quarter of entrepreneurs surveyed reported lower orders, the central bank said. The macro-economic heat index fell to 23.5 in the fourth quarter from 26.9 in the previous quarter.

Leading economic indicators are likely to be messy in the fourth quarter, as strict implementation of the zero-Covid policy in October and November dampened economic activities across the country, while a sudden lift of the policy – without adequate preparation of drugs, medical services and vaccinations – caused a rapid spread of infections in December. The country’s effort to meet this year’s growth target of “around 5.5%” is almost certain to fail. Economic prospects for early 2023 do not look much brighter, with domestic challenges – ranging from a struggling property sector and soft demand – coinciding with stronger external headwinds.

China is seeing fewer orders from the United States, Europe and other developed markets amid forecasts of a global recession in 2023. It is also facing U.S. export restrictions on key technology components. At the tone-setting Central Economic Work Conference (CEWC) in mid-December, policymakers said the focus will be on stabilizing growth and lifting investor confidence. Analysts expect a gradual normalization of economic activity in the second half of 2023, with many investment banks raising their growth estimates to above 5% in 2023.

But overseas skepticism remains high about just how quickly China’s economy can rebound to pre-Covid levels. “The timing is not perfect,” ING Chief Greater China Economist Iris Pang said. “There will be a fall in external demand. Export-related activities, including manufacturing, should slow, which would derail the recovery of the Chinese economy.” Ms Pang expects bigger fiscal spending, with emphasis on uncompleted home projects and more transport, energy and technology infrastructure. Guan Tao, Chief Economist at BOC International, warned of huge uncertainties due to the spread of Covid-19 infections, market adjustments and local debt, the South China Morning Post reports.