The strong growth rebound that was widely expected to follow the end of China’s "zero-COVID" policy has yet to materialize. This is both less surprising and easier to understand than many observers seem to think.
The end of COVID-19 lockdowns was supposed to unleash a powerful wave of pent-up demand. Instead, aggregate demand, which had been slowing before the pandemic, has returned to its previous trajectory. Though Chinese have been traveling, socializing and dining out more, consumer-spending growth by households has been limited. Fixed-asset investment has not recovered.
With a few exceptions, such as the new-energy-vehicle (NEV) sector, economic activity has remained subdued. As a result, growth has been much weaker than expected. Though real gross domestic product growth reached 4.5% in the first quarter, it is expected to slow in the second. Core inflation is hovering around zero and the producer price index is in negative territory.