The strict lockdowns imposed in China as part of the covid-zero policy have taken a heavy toll on its economy in the second quarter. The gross domestic product (GDP) of the Asian giant grew by only 0.4% year-on-year between April and June, its lowest level in two and a half years, as a result of the closures decreed in various parts of the country and, especially, in Shanghai , the national financial heart and where the largest cargo port in the world is located. The official data published this Friday by the National Statistics Office (ONE) are more pessimistic than those predicted by the experts – who predicted growth of 1% – and show a rapid slowdown compared to the first three months of the year, when the GDP advanced 4.8%.
China is the only major economy on the planet that continues to adhere to a zero-tolerance strategy against covid-19, which involves lockdowns, mass testing and border closures. Although thanks to these measures the country managed to keep infections at bay for almost two years, since the entry of omicron into its territory in February 2022, advocating for keeping the infection counter to a minimum with a much more contagious variant has been a capital challenge. The negative impact of this policy on travel, the supply chain and consumption has precipitated the economic slowdown in the spring months. The figures provided this Friday show China’s worst result since it began publishing them in 1992, except for the -6.7% bump it experienced in the first quarter of 2020, coinciding with the outbreak of the pandemic in Wuhan.
Despite these downward pressures, ONE spokesman Fu Linghui said on Friday that the second quarter shows positive growth. Fu considered that the Chinese economy registered “a stable recovery” once the country adopted “strong measures to counteract the impact of unforeseen factors.” This appreciation refers to the improvement in certain indices in June, when some of the protocols against the coronavirus began to be relaxed. Industrial production increased by 3.9% year-on-year (vs. 0.7% in May) and retail sales rebounded by 3.1%, after falling by 6.7% in the previous month and up 11.1% in April .
Although the unemployment rate in cities stood at 5.5% in June, compared to 5.9% in May and 6.1% in April, the increase in unemployment among young people aged 16 to 24 is particularly alarming. years, which reached a record figure of 19.3%. “The jump in retail sales is quite a surprise… I’m not sure if it can last long as the labor market is quite weak at the moment,” warns Nathan Chow of DBS Hong Kong.
ONE also facilitated economic growth during the first half, which increased to 2.5%. The data represents a huge slowdown compared to the 12.7% reached in the first half of 2021, although at that time the statistics benefited from being compared with the first half of 2020, when the virus was officially detected for the first time.
“At the national level, the impact of the pandemic persists,” the ONE said in its statement. The draconian closure of Shanghai – which accounts for 5% of the national GDP – for two months, caused the country’s main business city to experience a 13.7% year-on-year contraction of its GDP in the second quarter. That of Beijing, for its part, fell by 2.9% in the same period.
Given the “volatile and uncertain” situation, the Government has set a growth target for this year “around 5.5%”, a figure that analysts question can be achieved. “Even with a bit of data manipulation, it’s hard to believe that China will hit the 5.5 target,” Julian Evans-Pritchard, chief economist at Capital Economics, said in a note. “That would require a huge acceleration in the second half of this year, which is unlikely,” he adds. The recent appearance of the highly contagious BA.5 subvariant of omicron in some cities—and the subsequent imposition of lockdowns to control its spread—increases uncertainty among business owners and consumers.
The data presented this Friday increases the pressure on the Communist Party, which is on the verge of holding its 20th Congress in the fall, an appointment in which President Xi Jinping is expected to be re-elected for an unprecedented third term. “Looking ahead, we expect the economy to pick up before Congress, thanks to increased stimulus measures and relaxation of COVID-19 control policies,” said Li Wei, senior economist at Standard Chartered Shanghai. “Consequently, we maintain our forecasts at 4.1% growth for 2022 ″, he adds.
Last Thursday, Prime Minister Li Keqiang said that the foundations for China’s recovery were “still unstable” and demanded “to be more efficient” when it comes to “combining the prevention of covid with economic development.” At the end of May, the Chinese premier already surprised by requesting a relaxation of the measures to the provincial leaders, a step that led some experts to interpret as a sign of his disagreements with Xi, who in his statements has always given priority to the zero covid strategy.
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