DThe comparatively tough corona measures in China are choking off growth in the world’s second largest economy. China’s gross domestic product shrank by 2.6 percent in the second quarter compared to the beginning of the year, the statistics office in Beijing announced on Friday. Compared to the same period last year, there was growth of 0.4 percent. That was the weakest reading since the pandemic began.
In the first quarter, the economy grew by 4.8 percent year-on-year. The downward pressure has now increased significantly, the statistics office said. The economy is suffering because Beijing is not moving away from its “zero Covid policy”. The aim of this is to nip any outbreak in the bud. Numerous megacities had imposed strict measures, especially in spring, to prevent the spread of the highly contagious omicron variant.
Shanghai, China’s most important economic hub, had to spend two months in a tough lockdown in April and May, which hit the economy hard. The port there, the most important hub in world trade with China, only functioned to a limited extent.
The middle class is feeling the effects of weak growth
“The middle class is increasingly feeling the effects, for example through stagnating incomes or falling real estate prices. This increases the political pressure on the government to find solutions,” commented Max Zenglein from the Berlin China Institute Merics on the situation. The weak growth amplifies problems in the financial system. Without a significant upswing, an increase in payment defaults is to be expected in the coming months. “The government’s most effective stimulus package would be a departure from the draconian zero-Covid strategy,” Zenglein said.
Hardly anyone expects that in China. A few infections can still lead to entire districts being cordoned off, as was the case in the central Chinese metropolis of Xi’an last week. In Beijing, Shanghai and Shenzhen, the three most important economic centers, infections are repeatedly found, which again lead to restrictions.
According to economists, the strong export figures for June that China presented on Wednesday should not be taken as an all-clear. In part, the 17.9 percent increase can be explained by the fact that business was caught up after Shanghai was allowed to reopen at the end of May. Import growth of 1 percent prompted concern, indicating a lack of appetite among consumers.
Despite the weakness in the first half of the year, the Chinese leadership recently indicated that it did not want to give up its ambitious growth target of 5.5 percent for the year as a whole. China will “enact more effective measures to achieve the social and economic development goals for 2022,” President Xi Jinping announced at the end of June.
Appropriately, the local governments issued bonds in record amounts in June. The money will be used to build infrastructure. With new debts and high infrastructure spending, Beijing seems to want to rely on a tried and tested recipe to give the economy momentum.
This week, however, Premier Li Keqiang conceded that stabilizing the economy would be a difficult task. The head of government called for decisive action to be taken against rising unemployment.
