The Chinese economy is currently suffering as it recorded its lowest performance in two years. The cause of this sluggishness can largely be attributed to the periodic Covid lockdowns across various parts of China, which have caused severe collateral damage for businesses and individuals alike.
The closure and opening of major economic hubs in China have been a rollercoaster ride for those who want to invest or do business. Over recent months, the Chinese communities have seen this happen time after time as authorities imposed changing regulations during outbreaks and after it has been addressed.
The Chinese economy is showing signs that it may be slowing down. For example, the National Bureau of Statistics reported this week the GDP (Gross Domestic Product) within China only increased by 0.4% in three months.
The data from the last quarter was still sparse, but it’s clear that growth has slowed. The growth recorded in the last quarter was 4.8%.
The GDP of China is currently down by 2.6%, a clear manifestation of the effects of the Covid lockdowns.
The economy of China has been shrinking for the past few years. It began in 2020, when all business and general operations reached a standstill because of the outbreak in Wuhan, which led to strict lockdowns. At the time, the GDP of the country shrank by 6.8%.
The Chinese government has predicted an economic expansion of 5.5%. However, the current conditions in China make it very difficult for them to reach this goal with only a 2.5% expansion rate, according to Chinese authorities.
“There are challenges to achieving our expected economic growth target for the whole year,” said Fu Linghui, the National Bureau Statistics spokesperson. However, the Chinese economy has a chance to recover during the second half of the year, according to Fu.
Many challenges worsen the economic condition
The Chinese economy has been hit hard by many factors that hinder it from reaching its economic goals this year. One of the main ones is a strict zero-Covid policy, which prohibits businesses in China from completely recovering. Additionally, social protests are happening throughout several areas and the presence of bank debts.
The fight against Covid has been long and difficult, but it’s worth the effort. The Chinese government is committed to eliminating the virus within their borders – which they’ve done so many times, albeit having new outbreaks now and then. However, because some measures taken by authorities have gotten in between economic activities, it hurt the economy unintentionally.
The Chinese government has taken steps to recover the economy, but business owners are still uncertain about its direction. In June of this year, China’s unemployment rate among youth reached 19.3%.
Chaoping Zhu from JP Morgan Asset Management said the latest quarter “reflected the significant shocks from the Omicron outbreak and corresponding stringent measures adopted in major cities.”
He added, “Looking forward, we expect to see continued economic recovery in the second half of this year, mainly supported by government-led infrastructure investment.”
The economy will improve if Chinese authorities ease restrictions on covid. According to Zhu, confidence and business outlook are also likely to recover soon if this happens.
With China’s expected growth of 5% this year, it will be necessary for them to expand their economy by more than 7% during the second half of the year, explains an economist for Macquarie Group, Larry Hu.
Meanwhile, the property sector is currently in a slump, with investment rates dropping 9.4% last year in June, adding to the 7.8% fall it had a month before.
Hu explained, “The property woe is causing rising social instability, evidenced by the recent mortgage boycott.”
“Decisive and effective regulatory measures must be taken to prevent the mortgage boycott from developing into a systemic risk,” said Zhu from JP Morgan Asset Management.