China’s economic growth slows sharply as Covid policies take their toll

China's economic growth slows sharply as Covid policies take their toll
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The Chinese economy grew at its slowest pace this spring since the coronavirus pandemic began, a sharp slowdown amid Covid-19 policies that continue to result in widespread lockdowns and mass quarantines, halting some business activities.

The National Bureau of Statistics said on Friday that the economy grew 0.4 percent year-on-year in the second quarter, the lowest growth rate since the first three months of 2020. At that point, the country was effectively shut down to the To combat the early stages of the pandemic, its economy is shrinking for the first time in 28 years.

The downturn in 2020 was short-lived with the Chinese economy recovers almost immediately. But the current prospects are not that promising. Unemployment is near its highest level on record. The housing market is still a mess and small businesses are bearing the brunt of weak consumer spending.

The slowing economy poses a political problem for China, which is trying to project unwavering strength and stability in a year it plans to hold its own Communist Party Congress. Xi Jinping, the country’s leader, is expected to serve another five-year term.

A thriving economy and the promise of growing prosperity have underpinned China’s rise, part of the trade that Chinese citizens accept in exchange for living under authoritarian rule. But the lockdowns, an integral part of Beijing’s zero-Covid policy, have increased the risk of instability – socially and economically.

“China is the shoe that has never come off in the world economy,” said Kenneth Rogoff, Harvard University economics professor and former chief economist at the International Monetary Fund. “China is currently not poised to be the global engine of growth, and long-term fundamentals point to much slower growth over the next decade.”

In May, China’s Premier Li Keqiang called an emergency meeting sounded the alarm about the need to boost economic growth to more than 100,000 corporate and local government officials. The stark warning cast doubt on China’s ability to meet its earlier growth target of 5.5 percent for the year.

Measures to tackle overborrowing by property developers, along with Covid restrictions, have exacerbated a slowdown that could have global repercussions. Last month, Nike said Sales and profits fell in the most recent fiscal quarter, with sales to China falling 19 percent.

That recent economic crisis arrived in April and May when Shanghai, China’s largest city, went into lockdown for almost two months and the impact was hitting the economy. Office buildings have been closed and workers have been ordered to stay at home. Across China, hundreds of millions of consumers have been locked down – shops, restaurants and service providers have been forced to continue without customers.

Zheng Jingrong, the owner of a shop in Beijing that sells imported handmade clothes, said she usually sold 150 to 200 pieces of clothing in a month before the pandemic. In May she sold 20. Your regular customers would no longer come by, people generally didn’t like to go out. Each year of the pandemic has been “worse than the year before,” Ms. Zheng said.

And the problem isn’t limited to her clothing store. MS. Zheng said more than 300 shops used to operate in the same neighborhood as her business in Gulou, a maze of streets and alleys that was once teeming with food stalls, cafes and bars. She estimated that 20 percent of those businesses were closing or had closed.

“Because China started to boom and develop from the 1980s, its economy has always been on the rise,” Ms. said. Zheng, who has run the store for 15 years. “Now it’s obviously going down.”

Retail sales, an indicator of how much consumers are spending, fell 4.6 percent year-on-year from April to June, according to the government.

And even as the economy recovered in June, the threat of more mass quarantines could derail that nascent recovery. This week, the cities of Xi’an, Lanzhou and Haikou imposed partial lockdowns, laying down restrictions on millions of residents by closing non-essential businesses and enforcing mass testing.

Japanese securities firm Nomura estimated that 247 million people in 31 cities in China were under some form of lockdown as of Monday, accounting for about a fifth of the country’s population and an annual gross domestic product equivalent to around $4.3 trillion. The number of cities affected has almost tripled compared to a week earlier.

Beijing has asked the local authorities to strengthen measures it ensure job stability during lockdown periods. And yet, with so many small and medium-sized businesses suffering financially, the government is struggling to contain rising unemployment.

In June, the jobless rate was 5.5 percent — an improvement from April and May but near the highest level since China started reporting numbers in 2018. Among jobseekers aged 16 to 24, which includes recent college graduates, the unemployment rate was higher at 19.3 percent, more than three times as high.

James Fu quit his job as a landscape architect for a property developer last month – a grueling job he’s come to hate. But now he’s struggling with the fear of finding a job in a tough job market, particularly in real estate.

Mister. Fu, 28, said real estate companies have fewer jobs available because the companies are either struggling financially or using the downturn to justify staff and cost cuts. And because the range of jobs has shrunk, the requirements for security have increased. He said a job that in the past he might have gotten with two to three years of experience now requires five to 10 years for the same salary.

“I’ve been at a standstill lately,” said Mr. Fu, who lives in Chengdu, Sichuan Province. “This year could be particularly difficult. I think it’s been harder since the pandemic started.”

In addition to the high unemployment, it is becoming apparent that the weakness in the real estate market this year could also pose a major problem for the Chinese government. Measures to limit real estate speculation drove the sector into a debt spiral, depress prices for new homes for the first time in years and shook consumer confidence, many of whom had invested household savings in real estate.

Dissatisfaction is growing among people who bought houses before they were built. According to state media, more and more homebuyers are refusing to pay mortgages and are upset about construction delays and falling home prices.

Buyers of 35 projects in 22 cities have decided to stop paying mortgages, Citigroup analyst Griffin Chan wrote in a note to clients on Wednesday. That has left real estate firms in a bind: if they can get away with customers’ down payments because they haven’t paid their mortgages, it could lead to “social instability,” Mr. Said Chan said.

Claire Fu contributed research.

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