Business

China’s economy slows sharply as ‘zero COVID’ pummels activity

Lockdowns in dozens of Chinese cities drag consumption and industrial production to lowest levels since early 2020.

Published On 16 May 2022

China’s economy slowed sharply in April as Beijing’s ultra-strict “dynamic zero COVID” strategy dragged consumption and industrial production to their lowest levels since early 2020.

The deteriorating economic picture comes as authorities have imposed full or partial lockdowns on dozens of Chinese cities, including the financial capital Shanghai, where more than 25 million residents have been under severe restrictions since late March.

With millions of Chinese confined to their homes, retail sales last month dropped 11.1 percent compared with the previous year, sharply worse than March’s 3.5 percent contraction, data from the National Bureau of Statistics showed on Monday.

The figure marked the biggest decline since March 2020.

As lockdowns forced factories to suspend operations and disrupted supply chains, industrial production fell 2.9 percent from a year earlier, compared with a 5 percent gain in March, marking the largest decline since February 2020.

China’s job market also took a hit, with the nationwide jobless rate rising to 6.1 percent in April, up from 5.8 percent, marking the highest rate since February 2020.

The poor figures pour doubt on Beijing being able to meet its ambitious target of 5.5 percent growth in 2022 and are likely to fuel fears of the world’s second-largest economy contracting this quarter.

Limited help for the economy

“The data might be only the start of the recession,” Alicia García-Herrero, chief Asia Pacific economist at Natixis in Hong, told Al Jazeera. “Given the continuation of the COVID restrictions in May, the data will not be good in this month as well. We shall expect more rescue policies to support private and small enterprises, which are important hubs for employment, as unemployment increased to 6.1 percent in April.”

García-Herrero said the poor economic data would put pressure on the People’s Bank of China to lower interest rates to shore up growth.

“The probability of cutting rates has become much higher now,” she said. “If the policymakers want to do so, they need to do this quickly before the domestic inflation goes up too high. But even doing so, I think these measures will only have limited help for the economy.”

García-Herrero said a second-quarter contraction would be inevitable without a clear exit from “zero COVID” policies.

Despite the growing economic toll and official pledges to roll out measures to help industries and small firms, Beijing has repeatedly doubled down on its controversial “zero COVID” strategy and offered little indication of any plan to permanently exit recurring lockdowns and border controls.

In a possible sign that draconian controls could continue in the longer term, China on Saturday withdrew as the host of the 2023 Asian Cup scheduled for July next year.

Fixed asset investment, which Beijing is counting on to prop up the economy as consumption and production sectors sag, increased 6.8 percent year on year in the first four months.

Tommy Wu, lead China economist at Oxford Economics in Hong Kong, said China’s economy could experience a recovery in the second half of the year, assuming authorities do not impose Shanghai-style lockdowns on other major cities.

On Monday, Shanghai authorities said they are aiming to broadly reopen the city and allow the resumption of normal life from June 1, after eliminating COVID cases outside quarantine areas in 15 of its 16 districts.

“While the government has prioritised Covid containment, it is also determined to support the economy through more forceful infrastructure spending, and targeted monetary easing to support SMEs, the manufacturing and real estate sectors, and infrastructure financing,” Wu said in a note on Monday.

“Still, the risks to the outlook are tilted to the downside, as the effectiveness of policy stimulus will largely depend on the scale of future Covid outbreaks and lockdowns.”

Source

:

Al Jazeera and news agencies

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button