Beijing The extent of the economic damage China’s lockdowns have caused is likely to become apparent on Friday. Then the National Bureau of Statistics will publish the growth figures for the months of April to June as well as numerous other economic indicators. The data will also shed light on whether government leaders need to pass additional stimulus packages to stabilize the recently hit economy.
Economists expect that the world’s second largest economy shrank by two percent in the second quarter compared to the previous quarter. Compared to the same period last year, this would correspond to an increase of 1.2 percent and would be the lowest value since the sharp slump in the first quarter of 2020 after the first outbreak of the pandemic.
In addition to the GDP figures, the June data on unemployment, retail sales, house prices, industrial production and lending should also be revealing. Because it will show whether and how quickly the economy has recovered from the extensive lockdowns, which also affected metropolises like Shanghai. Experts are expecting a significant increase in industrial production, for example, as many factories have started up again and are now processing the backlogged orders.
However, this is not an all-clear. Because recently, the number of new Covid infections in China has increased significantly again. The highly contagious BA.5 variant appears to be spreading rapidly. Several cities have significantly tightened the corona restrictions again, such as the industrial metropolises of Guangzhou and Xi’an.
Top jobs of the day
Find the best jobs now and
be notified by email.
In Shanghai, residents of individual neighborhoods have been asked to stock up on food and medicine for two weeks, raising concerns about another lockdown. According to the Bloomberg news agency, around 30 million Chinese are currently suffering from some form of restricted movement as part of the zero-Covid policy.
The constant danger of renewed lockdowns is increasingly causing resentment and uncertainty among the population and companies. You save instead of investing and consuming. At the same time, this exacerbates the smoldering crisis on the real estate market, which recently contributed around a third to economic growth.
No tailwind expected from exports
Unlike after the first pandemic-related economic downturn in early 2020, exports are unlikely to help China’s economy recover quickly this time. At that time, the high demand for electrical products for the home office from the rest of the world, which was plagued by lockdown, caused a special boom in China.
The Chinese customs authorities reported strong export growth of almost 18 percent in June compared to the same month last year. But experts warn against wrong conclusions: The monthly data are only a sign that port and land logistics are recovering after the lockdowns, write the analysts at ING Bank in a current classification. The backlog that has formed as a result of the closures is now being processed there. So far, there is no indication of stronger demand from abroad, according to the authors.
>> Also read here: Wall Street closes slightly in the red – concerns about renewed corona lockdowns in China
Rather, in view of the economic difficulties in important sales markets, a decline in demand from abroad must be expected. Should the US and Europe slide into recession, it would face “strong headwinds” for China, warned Rohit Sipahimalani, chief investment officer at Singapore’s sovereign wealth fund Temasek. This and the renewed outbreaks in important economic regions such as Shanghai and Guangzhou are increasing the pressure on the Chinese government to support the economy more than before.
Recently there have been increasing signs that the government is considering a significant increase in economic stimulus packages. A state infrastructure fund with a volume of 500 billion renminbi, the equivalent of around 74 billion dollars, is planned. This was reported by the Reuters news agency last week with reference to insiders. So far, infrastructure investments with a volume equivalent to 45 billion dollars have been announced.
In addition, the government in Beijing apparently wants to authorize the provincial governments to raise additional money equivalent to 220 billion dollars in the form of special bonds on the capital markets, also to invest in infrastructure. So far they were only required to exhaust the issuance limit for the entire year of a total of 540 billion dollars in the first half of the year, which has also happened.
Economists are calling for additional help for companies and consumers
In the past few weeks, calls for more political support have been raised. So far, with the exception of subsidies for the purchase of cars and household appliances, the state leadership has relied primarily on the tried and tested recipe for infrastructure investments. However, experts doubt that this is enough. Michael Pettis, finance professor at Peking University, has long advocated strengthening the demand side instead of expanding supply.
China will have to take “unconventional measures” in the second half of the year to reach the growth target of around 5.5 percent, Feng Qiaobin of the Development Research Center, a research institution of the State Council, told the state-run newspaper Economic Daily.
>> Also read here: In China, homebuyers in 22 cities are refusing to service their debts
However, most economists assume that the goal can hardly be reached. The International Monetary Fund is currently anticipating growth of 4.4 percent for the year as a whole. Some of the forecasts of other analysts are even lower, such as those of the Japanese investment bank Nomura with 3.9 percent.
In particular, the aid for small businesses is “still insufficient,” stated former Finance Minister Lou Jiwei at a conference of the renowned business magazine “Caixin” on Saturday. The budget deficit of central and local governments could be increased if necessary to give more support to businesses, he suggested.
Zhang Bin from the Institute for World Economy and Politics at the Chinese Academy of Social Sciences (CASS), a state think tank, also advocates stronger monetary policy support: The interest rate is the most important price lever for macroeconomic operations, he emphasized at the conference. This could also alleviate the problems of the highly indebted real estate groups. Zhang warned of the long-term negative impact of not properly solving the current problems in the Chinese economy.
More: Why Beijing’s backsliding on vaccination records could delay the end of the zero-Covid policy