After accelerating since October, industrial growth slowed again in March. It is hampered by anti-Covid measures and sluggish domestic demand, as well as by the slowdown in world demand and new supply chain disruptions triggered by the war in Ukraine. After an extremely solid performance in 2020 and 2021, exports are expected to slow down significantly in 2022.
The direct impact of the war in Ukraine on China’s economic activity should be moderate. On the one hand, Chinese exports to Russia and Ukraine account for only 2.3% of total exports, while its imports from these two countries account for less than 3% of total imports. On the other hand, the surge in global commodity prices should have only a mild impact on the consumer price index and households’ purchasing power in the short term, thanks notably to the existence of partial controls on energy and grain prices.
In contrast, producer price inflation is expected to stay high (it averaged 8.1% in 2021), which should restrain industrial activity. Moreover, some sectors may also experience supply-chain problems, at least for products coming from Ukraine. China is dependent on Russia and/or Ukraine for supplies of oil (14% of its total oil imports), wood (19%), industrial metals (about 7%), certain grains (50% for corn, less than 1% for wheat) and fertilizers (22%).
In this environment, China’s official economic growth target, which has been set at 5.5% for 2022, seems to be very ambitious. The authorities are currently ramping up fiscal and monetary policy easing measures.
