China’s economy grew at the slowest pace since the initial coronavirus outbreak in Wuhan, a reflection of the damage the nation’s zero-Covid approach has had on growth and the challenge Beijing faces in meeting its full-year target.
Gross domestic product increased 0.4 per cent from a year earlier, the worst performance since the first quarter of 2020, the National Bureau of Statistics said on Friday. Growth was far weaker than the 1.2 per cent gain in a Bloomberg survey of economists. On a quarterly basis, the economy contracted 2.6 per cent.
China’s economy is paying the price for Beijing’s attempt to stamp out Covid cases, a strategy that’s becoming evermore difficult as more infectious virus variants emerge. On top of that, the property market remains in a deep slump. Economists say the government’s ambitious growth goal of about 5.5 per cent is out of reach, with GDP forecast to expand slightly more than 4 per cent this year.
“The downward pressure on the economy has increased significantly since the second quarter,” with serious impact from unexpected factors, the NBS said on Friday. “The foundation for sustained economic recovery is not stable,” it said, weighed by rising stagflation risks in the world economy, tightening of monetary policies in major economies and the impact of domestic virus outbreaks.
Friday’s data showed consumption began improving in June after financial and trade hub Shanghai emerged from its crippling lockdown and restrictions in several other cities were eased.
Industrial output rose 3.9 per cent in June from a year earlier, up from May's increase of 0.7 per cent and compared with a median estimate of 4 per cent.
Retail sales grew 3.1 per cent, compared with a contraction of 6.7 per cent in May and beating a 0.3 per cent increase projected by economists.
Fixed-asset investment grew 6.1 per cent in the first half of the year. The surveyed unemployment rate eased to 5.5 per cent from May's 5.9 per cent. For those aged 16-24, the unemployment rate reached a record of 19.3 per cent. Home prices fell 0.1 per cent month-on-month in June, a slightly smaller contraction than in May.
Chinese stocks held their gains after the data, with the benchmark CSI 300 Index up 0.2 per cent. The onshore yuan gained as much as 0.3 per cent to 6.7399 per dollar, while yields on the benchmark note were little changed at 2.79 per cent.
In a speech this week, Premier Li Keqiang said that even though the economy is stabilising, the foundations for the recovery aren’t solid yet and more “arduous efforts” are needed to prop up growth. He also pointed out inflation risks, saying equal emphasis should be placed on stabilising the economy and curbing price-growth, particularly from imported sources.
Although official data showed an expansion in GDP, several high-frequency indicators suggest activity actually shrank in the quarter. Travel data showed passenger trips taken on China’s roads were mostly below last year’s levels into July, while car purchases, which make up about 10 per cent of monthly retail sales, fell more than 10 per cent in the quarter.
The NBS reported provincial GDP data as well on Friday, showing Shanghai’s economy contracted 13.7 per cent in the second quarter from a year earlier, while Beijing’s GDP fell 2.9 per cent.
The strength of the economy’s recovery will hinge largely on how fast authorities can bring new outbreaks under control and how much stimulus it can deploy in the second half of the year.
Despite growing pressures, the People’s Bank of China has taken a cautious easing path this year, refraining from cutting policy rates since January. It has instead relied more on structural measures to support targeted sectors such as the property industry and small firms.
Earlier on Friday, the PBOC refrained from injecting fresh funds into the banking system while keeping the interest rate on its one-year policy loans unchanged at 2.85 per cent.
Beijing has been beefing up infrastructure spending to help offset the slump in growth. The government and policy banks are making 7.2 trillion yuan ($1.1tn) available for projects, calculations made by Bloomberg News show. Even so, economists say that won’t be enough for the government to meet its GDP growth target for the year.