When countries around the world have stumbled in the face of pandemic headwinds, China has often stood apart, seemingly impenetrable to economic pressures that undermined growth.
But now, pulled down by its commitment to curbing the spread of Covid-19 with widespread shutdowns and mass quarantines, China has suffered one of its worst quarters in many years, threatening a global economy that is heavily dependent on Chinese factories and consumers.
For the country’s ruling Communist Party, the downturn could put further pressure on Beijing in a sensitive moment. China is scheduled to hold its party congress later this year. A thriving economy and growing wealth were part of the trade that Chinese citizens accepted 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 – both socially and economically.
China’s National Bureau of Statistics said Friday that the economy grew 0.4 percent from a year earlier in the second quarter, worse than some economists’ expectations. It was the lowest growth rate since the first three months of 2020, when the country actually shut down to combat the early stages of the pandemic, and the economy shrank 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.
“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.”
This is an undesirable complication in a year when China is trying to project unshakable strength and stability. At the party congress, Xi Jinping, the country’s leader, is expected to continue with a new five-year term, which further cements his grip on power.
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.
The latest on China: Important things to know
China’s economy is stumbling. Hurt by blockades imposed to curb the spread of Covid, China’s economic engine has shaken in recent months, as home sales fell, shops and restaurants closed and youth unemployment rose. The decline has cast doubt on the viability of the country’s strict strategy to eliminate virtually all Covid-19 infections.
China’s declining growth complicates an already fragile global economy. Rising inflation has increased the risk of recession in the US, while Russia’s invasion of Ukraine has pushed up energy prices and disrupted supply chains across Europe. In earlier moments of economic crisis, China eased economic pressure with access to cheap production and a largely untapped market of consumers eager to spend.
But China is no longer growing by leaps and bounds. The Covid restrictions, combined with policies implemented in recent years – such as cracking down on real estate speculation and curbing the power of China’s technology giants – have intensified the downturn. So far this year, Starbucks, Nike and Hilton have all warned that weak spending in China had reduced sales.
While large parts of the world have learned to live with the coronavirus, China has adopted a zero-Covid policy to do what is necessary to prevent infection. According to this policy, residents of an entire apartment building could be locked up in their homes for several weeks if a single tenant became infected. A few positive cases can make a whole lot of a city lock up.
Even as the burden of these guidelines has become apparent, Mr. Xi has not failed. He has said he is willing to endure some temporary financial pain to keep Chinese citizens free of Covid.
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 even if the economy improved in June, the threat of further mass quarantines could derail an incipient recovery.
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.
As of June, unemployment was 5.5 percent – an improvement from April and May, but close to the highest level since China began reporting the figures in 2018. For jobseekers aged 16 to 24, which includes recent college graduates, unemployment was more 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.
“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 high unemployment, there are other signs of bubbling economic discontent. On Sunday, there was a rare demonstration in the city of Zhengzhou in central China by depositors demanding the money back from four rural banks after their money was frozen. The protests became violent when the authorities sent guards to break up the demonstration.
Weakness in the real estate market has also led to public demonstrations of defiance. An increasing number of property owners who bought homes before they were built have declared to banks and regulators that they will not pay their mortgages, upset by delays in construction and a decline in house prices, according to Chinese media.
When China implemented measures in 2020 to curb real estate speculation, it pushed many real estate developers into a debt spiral, pushed down the prices of new homes for the first time in years and eroded consumer confidence, many of whom had plowed household savings into real estate. .
In response to concerns about mortgage repayment, China’s banking and insurance regulator said it would work across central government and with local governments to ensure buildings are finished, jobs saved and “ensure stability” in the real estate industry, according to state-run TV.
Claire Fu contributed research.