China Q2 GDP Growth at 0.4%... Second Worst Ever (Update)

[Asia Economy Beijing=Special Correspondent Jo Young-shin] The expensive bill for China’s ‘Zero (0) COVID-19 (lockdown) policy’ has arrived.

China’s National Bureau of Statistics announced on the 15th that China’s gross domestic product (GDP) growth rate for the second quarter of this year was preliminarily estimated at 0.4% compared to the same period last year. This is the lowest level in more than two years since the minus (-) 6.8% in the first quarter of 2020. Historically, it is the second lowest performance since China began compiling related statistics in 1992.

China’s leadership’s economic growth target for this year is ‘around 5.5%’. The prevailing assessment is that achieving this year’s economic growth target is virtually out of reach. COVID-19 is resurging in various places recently, making the outlook for the second half of the year uncertain. The market expects China to introduce artificial stimulus measures to boost the growth rate.

The Chinese economy seemed to rebound after hitting a peak of 18.3% in the first quarter of last year, recording 7.9% in the second quarter, 4.9% in the third quarter, 4.0% in the fourth quarter, and 4.8% in the first quarter of this year.

The factor holding back China’s economy is the resurgence of COVID-19 and the resulting lockdown policies. Since the end of March, the Chinese authorities began using unprecedented policies worldwide, such as locking down major cities including Shanghai, to prevent the resurgence of COVID-19, which caused the Chinese economy to start collapsing.

The sector hit hardest was domestic demand (consumption). Retail sales, an indicator of domestic demand, turned negative at -3.5% (year-on-year) in March, followed by -11.1% in April and -6.7% in May. Although the negative margin is shrinking as the spread of COVID-19 is controlled, it will take considerable time for the once-dampened consumer sentiment to revive.

The regions most severely affected were Shanghai, the economic capital, and Jiangsu Province, Zhejiang Province, and Anhui Province near the Yangtze River Delta, an industrial and manufacturing area. In Shanghai, social consumer goods sales decreased by -18.9% month-on-month in March, followed by -48.3% in April and -36.5% in May. The cumulative social consumer goods sales for May reached -18.7% year-on-year. Although the lockdown in Shanghai was lifted from June, it is impossible to make up for the negative figures in just one month.

Prices are also unstable. Shanghai’s consumer price index (CPI) in May rose 4.6% year-on-year. This is a full 2.5 percentage points higher than China’s overall CPI of 2.1%. The Chinese government’s price management target for this year is 3%. This is why public sentiment in Shanghai and surrounding areas is uneasy.

The decline in consumption is also reflected in trade statistics. China’s exports in the first half (January to June) increased by 13.2% year-on-year to 11.14 trillion yuan, but imports rose by only 4.8% (8.66 trillion yuan).

The Chinese authorities are aware of the seriousness of the situation and are rushing to implement major seven projects, including expanding road networks, to stimulate the economy. It is also reported that additional fiscal policies, such as raising the issuance limit of special bonds allocated to local governments, are being prepared.

However, the People’s Bank of China, the central bank, is not expected to use monetary policy such as lowering the loan prime rate (LPR), which is equivalent to the benchmark interest rate, for the time being.

This content was produced with the assistance of AI translation services.