China’s economy is developing weakly – coronavirus blockades are a burden

Beijing The coronavirus blockades in April and May seriously damaged the Chinese economy. The world’s second-largest economy grew by just 0.4 percent in the second quarter compared to the same period last year. This is much less than experts expected, and it is the lowest since the sharp collapse in early 2020 following the first outbreak of the koruna pandemic. Compared to the previous quarter, the economy shrank by 2.6%.

Data released on Friday by the National Statistics Office also suggest that the economy recovered in June. However, the agency acknowledges that the basis for a sustained economic recovery is “fragile”. The downward pressure on the economy increased significantly in the second quarter. And further tensions have emerged from the growing risk of stagflation in the global economy, tightening of monetary policy in major economies and the impact of the domestic virus epidemic.

In addition to data on growth, the statistical office also published the June data, incl. on unemployment, retail trade, industrial production, investment and housing prices. The retail sector recovered somewhat in June after the sharp slump in May and April and rose by 3.1%. Industrial production increased by 3.9 percent. Experts assume, however, that this is largely a question of catch-up effects.

The unemployment rate fell to 5.5 percent. from 5.9 percent in May. However, the unemployment rate among young people aged 16 to 24 has risen to a record 19.3%. The latter is increasingly worrying the leaders of the state. There is also no relaxation in the real estate market. House prices fell 0.1 percent. compared to the previous month, pointing to continued weak demand.

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Given these risks, calls for a larger stimulus package are likely to get even louder. In mid-May, the State Council chaired by Chinese Prime Minister Li Keqiang adopted a package of 33 economic stimulus measures to support the economy. They include, among others infrastructure investments, easier lending, tax cuts and incentives to buy e.g. cars and household appliances.

Prime Minister Li sees “a lot of uncertainty”

At an economic symposium on Wednesday, Li praised “quick and decisive measures without relying on mass stimulus.” However, the recovery is not yet complete and “much is unknown”.

>> Read also: China’s economic collapse forces state to take “unconventional measures”

In particular, the risk of a new corona wave “should not be taken lightly,” warns Lu Ting, China’s chief economist at Japanese investment bank Nomura. Re-locks and other restrictions can hamper production and logistics. He still sees “significant risks to growth” in the second half of the year.

A new, highly contagious variant of BA.5 is now spreading in China and causing coronation restraints in economic centers such as Shanghai, Guangzhou and Xi’an. Despite the negative economic spillover effects, the Chinese government is steadfast in its strict zero-Covid policy. This means that even in single cases of crowning, entire buildings and even neighborhoods are hermetically separated. President Xi Jinping recently reaffirmed his willingness to sacrifice some short-term growth to contain the country’s pandemic.

Experts believe that, unlike the first economic crisis associated with the pandemic in early 2020, exports are unlikely to help the Chinese economy recover quickly. According to Lu, the decline in demand in major economies is likely to be “stark contrast” to the Chinese export economy in the coming quarters.

Experts doubt whether the measures announced so far will be sufficient to stabilize the economy, not to mention achieving the announced target of 5.5 percent. growth. According to media reports, the government plans to massively increase infrastructure investments. According to the Bloomberg news agency, state funds can provide $ 1.1 trillion in state support.

The IMF calls for a move away from a strict zero-Covid strategy

The International Monetary Fund on Wednesday called on China to extend fiscal support in the form of remittances and its draconian ‘zero-Covid’ strategy to stem the downturn in the world’s second-largest economy. The IMF also encourages China to accelerate its delayed vaccination campaign, particularly targeting the under-vaccinated elderly population.

So far, the state leadership has avoided the adoption of a huge stimulus package like the one following the 2008 financial crisis. At that time, he counteracted the collapse of exports, which was the largest stimulus in the world at the time, amounting to $ 587 billion. China quickly emerged from the crisis, but it still suffers from side effects today: economic growth is largely dependent on (government) investments.

In fact, the government around Xi Jinping wanted to get away from this “bogus growth” and develop domestic consumption to support the economy. However, the precarious state of the Chinese economy as a result of repeated blockages with no foreseeable end and the cooling of the world economy have ruined this plan, at least for now.

More: Stock market crash, growth collapse, blocking madness – China crash

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