China’s Economy Hits a Slump as Covid Policy Takes a Toll

When countries around the world stumble in the face of pandemic headwinds, China often stands out and appears unaffected by financial pressures that undermine growth.

But now, dragged by a commitment to curb the Covid-19 epidemic with widespread blockades and mass quarantine, China suffers from one of the worst quarters in a few years and is heavily dependent on China’s factories and consumers. It threatens the economy.

For the ruling Communist Party of the country, a recession could put more pressure on Beijing in sensitive moments. China plans to hold a party convention later this year. A prosperous economy and growing wealth were part of the bargains accepted by the Chinese people in exchange for living under authoritarian rule.

However, the blockade, which is the cornerstone of Beijing’s Zero-COVID policy, increases the risk of social and economic instability.

China’s National Bureau of Statistics said on Friday that the economy had expanded 0.4% year-on-year in the second quarter, worse than some economists expected. It was the lowest growth rate since the first three months of 2020, when the country was effectively closed to fight the early stages of the pandemic and its economy shrank for the first time in 28 years.

The recession in 2020 was short-lived and the Chinese economy recovered almost immediately. But the current outlook is not very promising. The unemployment rate is approaching record highs. The housing market is still in turmoil, and SMEs are under the brunt of weak consumer spending.

Kenneth Rogoff, a professor of economics at Harvard University and a former chief economist at the International Monetary Fund, said: “China is not currently in a position to be a global driver of growth, and long-term fundamentals show that growth will be much slower over the next decade.”

This is an undesired complication in a year when China is trying to predict unwavering strength and stability. At the party convention, national leader Xi Jinping is expected to reach another five-year term and further strengthen his seize power.

In May, China’s Prime Minister Li Keqiang convened an emergency meeting to warn more than 100,000 business and local government officials about the need to bring economic growth. Severe warnings questioned China’s ability to reach its earlier growth target of 5.5% that year.

China’s slowing growth complicates the already fragile world economy. The surge in inflation increased the risk of a recession in the United States, and Russia’s invasion of Ukraine pushed up energy prices and disrupted the supply chain across Europe. In the moment before the economic crisis, China eased financial pressure in untapped markets, with the majority of consumers eager to access and spend cheap manufacturing.

But China is no longer growing exponentially. Covid’s restrictions, combined with recent policies such as cracking down on real estate speculation and curbing the power of Chinese tech giants, exacerbate the slowdown. So far this year, Starbucks, Nike and Hilton have all warned that sluggish spending in China has pushed down sales.

Much of the world has learned to live with the coronavirus, but China has adopted a zero-corona policy to do whatever it takes to prevent infection. Under that policy, if a single tenant is infected, residents of the entire apartment can be trapped in their home for several weeks. Some positive cases can cause the entire section of the city to lock down.

Even if the sacrifices of these policies become apparent, Nishi-san didn’t flinch.. He said he was willing to endure temporary financial pain to free the Chinese people from Covid.

Recent economic malaise struck in April and May, when China’s largest city, Shanghai, was closed for nearly two months and its effects spread throughout the economy. The office building was closed and the workers were ordered to stay at home. Throughout China, hundreds of millions of consumers have been trapped and stores, restaurants and service providers have been able to continue without customers.

Zheng Jingrong, owner of a store that sells handmade clothes imported in Beijing, said he usually sold 150 to 200 clothes in the month before the pandemic. She sold 20 in May. She said her patrons aren’t coming anymore, and people generally hate going out. Every year in the pandemic is “worse than the previous year,” Chung said.

And the problem isn’t limited to her clothing store. Chung said more than 300 stores were operating in the same neighborhood as her Gulou store, a maze of streets and alleys that were once crowded with food stalls, cafes and bars. She estimated that 20% of these businesses were closed or closed.

“China has been booming and developing since the 1980s, so its economy has always been rising,” said Chung, who has been running the store for 15 years. “Now it’s definitely down.”

According to the government, retail sales, which indicate consumer spending, fell 4.6% year-on-year from April to June. And even if the economy improves in June, the threat of further mass quarantine could hinder early recovery.

As of Monday, Japanese brokerage firm Nomura had 247 million people in 31 cities under some sort of blockade in China, covering about one-fifth of its population and reaching a gross domestic product of about $ 4.3 trillion annually. Estimated to be equivalent. .. The number of affected cities has almost tripled from a week ago.

Beijing tells local governments Ensuring work stability Blockade. Still, so many SMEs are financially struggling that the government is struggling to cope with rising unemployment.

As of June, the unemployment rate was 5.5%, improving from April and May, but is approaching the highest level since China began reporting figures in 2018. The unemployment rate for job seekers aged 16 to 24, including new graduates, is 19.3 percent, more than triple.

James Who resigned from his job as a landscape designer for a real estate developer last month. This is a tough job that he has come to hate. But now he is tackling the anxiety of finding a job in the tough labor market, especially real estate.

Hu, 28, said there wasn’t much work available at the real estate company because the company was financially struggling or was taking advantage of the recession to justify personnel and cost savings. And as the pool of work shrank, the requirements for securing work increased, he said.

“I’ve been stagnant lately,” said Mr. Fu, who lives in Chengdu, Sichuan. “This year can be particularly difficult. I think it has been even more difficult since the pandemic began.”

In addition to the high unemployment rate, there are other signs of boiling financial dissatisfaction. On Sunday, in Zhengzhou, central China, there was a rare demonstration of depositors demanding repayments from four regional banks after the funds were frozen. The protests intensified when authorities sent guards to dissolve the protests.

Weaknesses in the real estate market have also led to public indications of rebellion. According to Chinese media, the number of real estate owners who bought homes before construction is increasing, and they have declared to banks and regulators that they will not pay mortgages, upset by construction delays and falling home prices. I am.

When China implemented measures to limit real estate speculation in 2020, it pushed many real estate developers into a debt spiral, pushing down new home prices for the first time in years, and many pouring household savings into real estate. It has shaken consumer confidence. ..

Chinese banks and insurance regulators are working with the entire central government and local governments to ensure building completion, job savings and “stability” in the real estate industry in response to concerns about mortgage repayments. Said to do. State TV..

Claire Fu Contributed to the research.