Growth in China weighed down by real estate and the Covid
Chinese economic growth slumped in the second quarter to sign its worst performance since 2020.
Although subject to caution, China’s official GDP figure is still closely scrutinized, given the country’s weight in the global economy. (illustrative image)
AFP
Sudden brake: China saw its economic growth collapse in the second quarter to sign its worst performance since 2020, due to health restrictions and a crisis in real estate which heavily penalized activity.
According to official figures released on Friday, the gross domestic product (GDP) of the world’s second largest economy grew over one year by only 0.4% over the April-June period. This is its weakest growth rate since the start of 2020, when in the first quarter the Covid-19 had paralyzed activity in China (-6.8%).
This decline was widely anticipated. A group of analysts polled by AFP, however, expected a much more moderate slowdown (1.6%). Although subject to caution, China’s official GDP figure is still closely scrutinized, given the country’s weight in the global economy. In the first quarter of 2022, the country’s gross domestic product (GDP) grew by 4.8% year on year.
The economy has been faced with an “extremely unusual” situation due to the international context and the Covid-19 in China, noted an official from the National Bureau of Statistics (BNS), Fu Linghui. Result, from one quarter to another, the growth of the Asian giant contracts by 2.6%, after an increase of 1.3% over the period January-March. If the markets were expecting a decline, its magnitude is “a shock”, economist Rajiv Biswas, of the firm S&P Global Market Intelligence, told AFP.
Weight of zero Covid
Since 2020, the country has applied a zero Covid policy, which consists of avoiding the occurrence of new cases as much as possible thanks to targeted confinements, massive screenings, the placement in quarantine of people who test positive and the monitoring of movements. In the spring, the economic capital Shanghai was locked down for two months in response to the country’s worst outbreak in two years.
A similar confinement was considered for a time in May in Beijing, capital and heart of political power. These measures have dealt a severe blow to the economy, with many businesses, factories and businesses forced to cease operations, and supply chains under strain. Unsurprisingly, Shanghai saw its GDP contract in the second quarter by 13.7% over one year.
Against this backdrop, positive second-quarter GDP growth is “hard to believe,” according to Julian Evans-Pritchard, an economist at Capital Economics. In June, retail sales, the main indicator of household spending, however rebounded strongly (+3.1% over one year), after a third month of decline in a row in May (-6.7%).
For its part, industrial production rose 3.9% year on year last month, after an unexpected rebound of 0.7% in May. The epidemic rebound came on top of the difficulties that were already weighing on the Chinese economy: sluggish consumption, Beijing’s turn of the screw against several dynamic sectors including that of tech, uncertainties linked to Ukraine but also real estate crisis .
Worried real estate
In June, the prices of new housing contracted again (-0.5% year on year), according to the BNS. This is the second month of decline for this index which aggregates the average price in 70 cities in China. In addition, “a growing number of buyers are ceasing to repay their monthly payments due to the economic slowdown and delays” from promoters for the progress of construction sites or the handing over of the keys, underlines economist Betty Wang, of the ANZ bank.
As for the unemployment rate, it stood at 5.5% in June against 5.9% a month earlier. Particularly monitored by the authorities and calculated for urban dwellers only, the unemployment rate had reached an absolute record of 6.2% in February 2020, at the height of the epidemic, before receding. Beijing has set itself the target of an increase in GDP of “about 5.5%” this year, which many economists doubt will be achieved.
This figure would mark for China its weakest growth rate since the beginning of the 1990s, excluding the Covid period. This slowdown in growth comes in a politically sensitive year which should see, barring a cataclysm, Xi Jinping being reappointed as head of the Chinese Communist Party (CCP) in the fall. Last year, the country, then recovered from the shock of the first epidemic wave, had generated a GDP up 8.1% for the whole of 2021.
Posted today at 05:43
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