China’s Economic Growth Slows Sharply as Covid Policy Suffers

China's Economic Growth Slows Sharply as Covid Policy Suffers
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China’s economy grew this spring at its slowest pace since the start of the coronavirus pandemic, with a sharp slowdown from Covid-19 policies continuing to trigger large-scale lockdowns and mass quarantines, halting some business activity.

The economy expanded 0.4 percent from a year earlier in the second quarter, the slowest pace since the first three months of 2020, the Office for National Statistics said on Friday. It was then that the country was effectively shut down to deal with the initial stages of the economic crisis. pandemic, its economy shrank for the first time in 28 years.

The recession in 2020 was short-lived with the Chinese economy it recovers almost immediately. But the current perspective is not so encouraging. Unemployment is near record levels. The housing market is still mixed, and small businesses are bearing the brunt of the weakness in consumer spending.

The economic slowdown poses a political challenge for China, which is trying to project unwavering strength and stability in a year of its own rally. Congress of the Communist Party. The country’s leader, Xi Jinping, is expected to be president for another five years.

A booming economy and the promise of growing wealth fueled China’s rise, part of the bargain Chinese citizens accepted in exchange for living under authoritarian rule. But the lockdowns underpinning Beijing’s zero-Covid policy have increased the risk of social and economic instability.

“China is the shoe that never drops in the global economy,” said Kenneth Rogoff, an economics professor at Harvard University and former chief economist at the International Monetary Fund. “China is now positioned to be the engine of global growth, and long-term fundamentals point to slower growth over the next decade.”

In May, Chinese Premier Li Keqiang called an emergency meeting raised alarm bells about the need to accelerate economic growth to more than 100,000 officials from business and local governments. The stark warning calls into question China’s ability to meet its previous 5.5 percent growth target for the year.

Measures to curb over-borrowing by property developers have combined with Covid restrictions to fuel a slowdown that could have global implications. Nike said last month revenues and profits declined sales to China fell 19 percent in the most recent fiscal quarter.

The the recent economic crash In April and May, China’s largest city, Shanghai, was under siege for nearly two months, and the impact rippled through the economy. Office buildings were closed, employees were ordered to stay at home. Across China, hundreds of millions of consumers were shut out – leaving shops, restaurants and service providers to continue without customers.

Zheng Jingrong, owner of a shop selling imported handmade clothes in Beijing, said he usually sold 150 to 200 pieces of clothing a month before the pandemic. In May, he sold 20. His regular customers no longer come, he said, and people generally don’t want to go out. Every year of the pandemic has been “worse than the year before,” Ms. Zheng said.

And the problem isn’t limited to her clothing store. Mrs. Zheng said more than 300 stores operate in the same neighborhood as his store in Gulou, a maze of streets and alleys once lined with food stalls, cafes and bars. He estimated that 20 percent of those businesses have closed or are closing.

“Since China began to prosper and develop since the 1980s, its economy has always been on the rise,” he said. Zheng, who has been running the shop for 15 years. “It’s clearly going down now.”

Retail sales, a measure of how much money consumers spend, fell 4.6 percent in the April-June period from a year earlier, according to the government.

Even if the economy improves in June, the threat of more massive quarantines could derail the emerging recovery. This week, the cities of Xi’an, Lanzhou and Haikou imposed partial lockdowns, closing non-essential businesses and imposing restrictions on several million residents.

Japanese securities firm Nomura estimated on Monday that 247 million people in 31 cities in China were under some form of lockdown, covering about a fifth of the national population and worth about $4.3 trillion in annual gross domestic product. product. The number of affected cities has nearly tripled since a week ago.

Beijing called local authorities strengthen measures for to ensure job stability during locking. And yet, the government is struggling to deal with rising unemployment at a time when many small and medium-sized businesses are suffering financially.

As of June, unemployment was 5.5 percent — an improvement from April and May, but close to the highest level since China began reporting the numbers in 2018. The unemployment rate was higher for job seekers aged 16-24, which includes recent college graduates. increased more than three times to 19.3 percent.

James Fu quit his job as a landscape designer for a property developer last month – a grueling job he hated. But now he’s dealing with the anxiety of finding work in a tough job market, particularly in real estate.

Mr. Fu, 28, said there are fewer jobs in property companies as firms either struggle financially or take advantage of the recession to cut staff and costs. And as the pool of jobs shrinks, he said, the demands to secure one are growing. He said a job that in the past could have been obtained with two to three years of experience now required five to 10 years at the same salary.

“I stopped recently,” said Mr. Fu, who lives in Chengdu, Sichuan Province. “This year may be particularly difficult. I think it’s been more difficult since the pandemic started.”

Along with high unemployment, there are new signs that weakness in the property market could pose a major challenge for the Chinese government this year. Measures to curb property speculation have pushed the sector into a debt spiral, lowers the prices of new homes for the first time in years and has shaken the confidence of consumers, many of whom are turning household savings into real estate.

Dissatisfaction is growing among people who buy houses before they are built. According to state media, more homebuyers are defaulting on their mortgages, worried about construction delays as well as falling home prices.

Buyers of 35 projects in 22 cities have decided to stop making mortgage payments, Citigroup analyst Griffin Chan wrote in a note to clients on Wednesday. This put property firms in a difficult position: If they walked away with clients’ down payments for defaulting on their mortgages, “social instability” could result, Mr. Chan said.

Claire Fu contributed to the research.

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