The big impact of the shutdown of Shanghai, a city of 25 million people, gives a “misleading picture of China’s economic performance” compared to last spring, said Diana Choireva, chief economist at Enodo Economics in London. Stated.
Rather, analysts said comparing the second quarter of 2023 to the preceding three months after the “zero-corona” policy was lifted would reveal more accurate economic data.
And by that measure, Q2 output was only 0.8% higher than Q1. Projected for the full year, this represents an annual growth rate of just over 3%, down from around 9% in the first quarter.
The Chinese economy is emitting many red flags.
Exports fell sharply, especially in June. Slumping spending is pushing China toward a dangerous trend known as deflation. Consumer prices are flat and wholesale prices paid by businesses are actually falling.
House prices have fallen in smaller cities, and the decline spilled over into the larger cities in June. That was another blow to the country’s property development and construction industry, which accounts for at least a quarter of the economy and is already reeling from dozens of defaults on bonds issued outside China.
Data released on Saturday by the National Bureau of Statistics showed the house price index in the country’s 70 cities fell at an annualized rate of 2.2% in June after falling by just 0.2% in May.
Investment has been sluggish, and foreign companies in particular have shown little appetite to invest in China. Local governments are short of funds. Baoding, a city of 12 million people in north-central China, had to suspend most bus services last week.
“It’s not a strong recovery. The economy is pretty weak,” said Wang Dan, chief economist at China Hang Seng Bank.
Signs of further economic troubles continue. The National Bureau of Statistics said on Monday that industrial production, which measures the output of China’s factories, mines and power plants, rose 4.4% last month, while retail sales rose 3.1% year-on-year. The General Department of Customs said last week that exports in June were exceptionally strong, down 12.4% from the same month last year.
After Shanghai’s lockdown last year, retailers in the US and Europe ordered up to three months’ worth of inventory from factories in China to allow for delivery delays, said Richard Fattal, co-founder of London logistics firm Zencargo. It is said that Companies are currently ordering half that amount, causing a temporary slump in Chinese exports.
Fatal said some companies have moved their supply chains out of China and the impact on exports will be long-lasting.
Workers are also struggling. The incomes of millions of people in China have plummeted during the pandemic and remain low. The unemployment rate among 16- to 24-year-olds, which was among the worst last year, reached 21.3% in June, the highest level since 2018 when China began releasing data, according to data released on Monday.
Economic performance in recent weeks has been poor enough that former Finance Minister Lu Ziwei publicly last week said the Chinese government will need to increase spending by $208 billion to $277 billion this year to stimulate the economy. suggested.
You can still find some hints of strength. The unemployment rate for those aged 25 to 59 remained low at 4.1%. Cui Dongxiu, secretary-general of the China Passenger Car Association, said car sales in June were up 8.7% from the previous month, marking the sixth straight month of growth.
National Bureau of Statistics official Fu Linghui said on Monday that consumer prices were not a concern. “Generally speaking, deflation does not exist in Chinese society and will not exist in the future,” he said.
why it matters
China has a significant impact on global growth. In recent years, the government has promoted a self-reliance movement to produce more goods domestically. Yet China remains the world’s largest importer of food, oil and many other commodities.
But there are many signs that Chinese households are reluctant to spend, including falling prices for staples such as pork and the massive erosion of the housing market, which has long been a main means of building wealth.
Many economists say future demand for Chinese goods and services will depend on the Chinese government’s policy decisions. Some, like Lu, are calling on the central government to launch spending programs that create jobs and stimulate consumer activity. But the accumulation of huge debts, especially at the municipal level, makes this difficult. Officials have instead resorted to monetary policy tools such as lower interest rates. Already reduced last month and may be further reduced.
“Without a policy response, including a monetary response, we cannot expect much of a recovery,” Wang said.
Lee Yu Contributed to research.