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

Impact of COVID-19 Lockdowns... Lowest in Over 2 Years Since Wuhan Incident

[Image source=Yonhap News]

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

On the 15th, China’s National Bureau of Statistics announced 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 -6.8% in the first quarter of 2020. Historically, it is the second lowest performance since China began compiling related statistics in 1992.

The Chinese leadership’s economic growth target for this year is “around 5.5%.” In fact, the prevailing assessment is that achieving this year’s economic growth target is out of reach. With COVID-19 resurging in various places recently, the outlook for the second half of the year is also uncertain. The market expects China to introduce artificial stimulus measures to boost growth. After peaking at 18.3% in the first quarter of last year, the Chinese economy recorded 7.9% in the second quarter, 4.9% in the third quarter, 4.0% in the fourth quarter, and appeared to rebound with 4.8% in the first quarter of this year.

The factor holding back the Chinese economy is the COVID-19 lockdown policy. Since the end of March, to prevent the resurgence of COVID-19, Chinese authorities implemented unprecedented lockdowns in major cities such as Shanghai, causing the Chinese economy to start collapsing.

The sector most severely affected 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 narrowing as the spread of COVID-19 is controlled, it will take considerable time for consumer sentiment, once extinguished, to revive.

The regions most severely hit 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, retail sales of consumer goods decreased by -18.9% month-on-month in March, followed by -48.3% in April and -36.5% in May. The cumulative retail sales of consumer goods in May were down -18.7% year-on-year. Although the Shanghai lockdown was lifted from June, it is impossible to make up for the negative figures in just one month.

Prices are also unstable. In May, Shanghai’s consumer price index (CPI) rose 4.6% year-on-year. This is 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. In the first half of the year (January to June), China’s export value increased by 13.2% year-on-year to 11.14 trillion yuan, but imports rose by only 4.8% (8.66 trillion yuan).

Recognizing the seriousness of the situation, Chinese authorities are rushing to implement major seven projects such as 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 the benchmark interest rate, for the time being.

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