China’s economic growth is slowing as Covid policy takes a toll

The Chinese economy grew at the lowest rate this spring since the onset of the coronavirus pandemic, a sharp decline from a Covid-19 policy that continues to lead to widespread shutdowns and mass quarantines, stopping some business activity.

The National Bureau of Statistics said Friday that the economy expanded 0.4 percent from a year earlier in the second quarter, the lowest growth since the first three months of 2020. That was when the country effectively shut down 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, and the Chinese economy recovered almost immediately. But the current outlook is not so promising. Unemployment is close to the highest levels recorded. The housing market is still a mess, and small businesses carry the bulk of the weakness in consumer spending.

The declining economy poses a political problem for China, which is trying to project unshakable strength and stability in a year when it plans to hold its Communist Party congress. Xi Jinping, the country’s leader, is expected to kiss for a new five-year term.

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

“China is the shoe that has never fallen in the global economy,” said Kenneth Rogoff, a professor of economics at Harvard University and former chief economist at the International Monetary Fund. “China is in no position to be the global engine of growth right now, and the long-term fundamentals point to much lower growth in the next decade.”

In May, Li Keqiang, China’s Prime Minister, called for an emergency meeting and sounded the alarm about the need to increase economic growth for more than 100,000 officials from companies and local governments. The strong warning casts doubt on China’s ability to reach its previous growth target of 5.5 percent for the year.

Measures to curb excessive borrowing from real estate developers have combined with Covid restrictions to intensify a downturn that could have global implications. Last month, Nike said that sales and profits fell in the last accounting quarter, with sales to China falling 19 percent.

The last economic disease hit in April and May, when Shanghai, China’s largest city, was locked for almost two months and the impact waved through the economy. Office buildings were closed, and workers were ordered to remain at home. Across China, hundreds of millions of consumers were locked in – so that shops, restaurants and service providers could continue without customers.

Zheng Jingrong, an owner of a shop in Beijing that sells imported handmade clothes, said she had typically sold 150 to 200 clothes in the month before the pandemic. In May, she sold 20. Her regular customers no longer come by, she said, and people are generally reluctant to go out. Each year of the pandemic has been “worse than the year before,” Zheng said.

And the problem is not limited to her clothing store. Zheng said more than 300 stores used to operate in the same neighborhood as her store in Gulou, a maze of streets and alleys once teeming with food stalls, cafes and bars. She estimated that 20 percent of these businesses were closing or had closed.

“Because China began to flourish and develop from the 1980s, the economy had always been booming,” said Zheng, who has run the store for 15 years. “Now it’s obviously going down.”

Retail sales, an indicator of how much consumers spend, fell 4.6 percent from a year earlier in April to June, according to the government.

And although the economy improved in June, the threat of further mass quarantines may derail the beginning of the upswing. This week, the cities of Xi’an, Lanzhou and Haikou imposed partial closures, limiting millions of residents by closing non-essential businesses and enforcing mass testing.

The Japanese investment firm Nomura estimated that as of Monday, 247 million people in 31 cities were under a form of blockade in China, which covers about one-fifth of the national population and accounts for about $ 4.3 trillion in annual gross domestic product. The number of affected cities almost tripled from a week earlier.

Beijing has called on local authorities to step up measures to ensure job stability during shutdowns. And yet, with so many small and medium-sized businesses suffering financially, the government has struggled to catch up with rising unemployment.

In June, unemployment was 5.5 percent – an improvement from April and May, but close to the highest level since China began reporting figures in 2018. For jobseekers aged 16 to 24, which includes recent college graduates, unemployment was higher than three times as high by 19.3 percent.

James Fu quit his job last month as a landscape designer for a real estate developer – a tiring job he began to hate. But now he is dealing with the anxiety of finding a job in a tough labor market, especially in real estate.

Mr. Fu, 28, said fewer jobs were available in real estate companies because firms are either struggling financially or using the downturn to justify staffing cuts and costs. And because the number of jobs has shrunk, he said, the requirements have to ensure a session. He said that a job that he may have gotten earlier with two to three years of experience now requires five to ten years, for the same salary.

“I have been standing still recently,” said Mr. Fu, who lives in Chengdu, Sichuan Province. – This year can be especially difficult. I think it has been more difficult since the pandemic started. “

Along with the high unemployment, there are signs that the weakness in the real estate market can also be a major problem for the Chinese government this year. Measures to curb real estate speculation pushed the sector into a debt spiral, pushing down the prices of new homes for the first time in years and eroding consumer confidence, many of whom had plowed into households’ savings into real estate.

Dissatisfaction among people who bought homes before they were built is growing. According to state media, several home buyers are refusing to pay off mortgages, outraged by delays in construction as well as declining house prices.

Buyers of 35 projects in 22 cities have decided to stop paying mortgages, wrote a Citigroup analyst, Griffin Chan, in a note to customers on Wednesday. It has put real estate companies in a tight spot: If they go away with customers’ down payments for not paying their mortgages, “social instability” could be the result, Chan said.

Claire Fu contributed research.

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