Diana Choyleva, chief economist at Enodo Economics in London, said that given the huge impact of the closure of Shanghai, home to 25 million people, a comparison this spring and last spring provides “a picture” distortions of China’s economic performance”.
Instead, analysts say, a more accurate gauge of the economy will emerge by comparing the second quarter of 2023 with three months earlier, after the “no Covid” policy was scrapped.
And by that measure, output in the second quarter was only 0.8% higher than in the first quarter. When projected for the full year, that’s a little over 3 percent a year growth, down from about 9 percent in the first quarter.
The Chinese economy is showing many warning signs
Exports fell, especially in June. Weak spending is pushing China closer to a dangerous trend known as deflation: Consumer prices were flat in June from a year earlier and actually down slightly from May levels. The wholesale prices paid by the companies have been reduced.
Housing prices have been sliding in smaller cities, and that drop spread to major cities in June. It was a further blow to the country’s construction and property development industry, which accounts for at least a quarter of the economy and has been shaken by dozens of defaults on externally issued bonds. outside China.
Data released by the National Bureau of Statistics on Saturday showed that the housing price index in 70 cities fell at an annual rate of 2.2% in June, after falling at an annual rate of just 0. .2% in May.
Investment has been hit hard, especially by foreign companies that have shown no desire to invest more money in China. The local government is short of cash. Baoding, a city of 12 million people in central north China, had to suspend most bus services last week.
“It was not a strong recovery; the economy is quite weak,” said Wang Dan, chief economist at Hang Seng Bank of China.
The Chinese yuan fell about 0.3% against the dollar on Monday, as investors expressed dismay at the weaker-than-expected economic weakness. Shares in China fell about 1 percent.
Signs of further economic troubles persist. The National Bureau of Statistics said on Monday that industrial production – a measure of the output of China’s factories, mines and power plants – rose 4.4% last month, while retail sales up 3.1% from a year earlier. The General Department of Customs announced last week that exports fell 12.4% in June compared to the same month last year, an unusually sharp drop.
Richard Fattal, co-founder of Zencargo, a London-based logistics company, said last year that, after Shanghai’s lockdown, retailers in the US and Europe ordered up valuable inventory. up to three months from Chinese factories in case of delivery delays. Companies are now ordering half that amount, temporarily reducing Chinese exports.
Mr. Fattal said some companies are also moving their supply chains out of China, which will have a more lasting impact on exports.
Workers are also struggling. The incomes of millions of people in China have been severely reduced during the pandemic and they are still weak. Unemployment among 16- to 24-year-olds, especially severe last year, reached 21.3% in June, according to data released on Monday, the highest level since China began. published statistics in 2018.
The performance of the economy has weakened in recent weeks to the point that Lou Jiwei, the former finance minister, publicly suggested last week that the Chinese government needs to increase spending this year from 208 billion to 277 billion dollars to stimulate the economy.
A few hints of strength can still be found. The unemployment rate for 25- to 59-year-olds is low, at 4.1%. Cui Dongshu, general secretary of the China Passenger Car Association, said that car sales in June increased by 8.7% from the previous month, this is the sixth month of increase in auto sales.
Fu Linghui, a top official with the National Bureau of Statistics, said on Monday that consumer prices were not a concern. “Generally speaking, there is no deflation in Chinese society and there will not be in the future,” he said.
Why is it important?
China has a sizable influence on global growth. The government in recent years has pursued a self-reliance campaign to produce more goods domestically. Even so, China remains the world’s largest importer of food, oil and other commodities.
But there are many signs that Chinese families are reluctant to spend – including falling prices of staples like pork and severe erosion of the housing market, which has long been the main way to do it. rich.
Many economists believe that the future demand for Chinese goods and services will depend on Beijing’s policy decisions. Some, like Mr. Lou, have called on the central government to launch a spending program to create jobs and stimulate consumer activity. But a huge amount of debt, especially at the local government level, has made that difficult to do. Instead, officials have relied on monetary policy measures such as rate cuts. fell last month and can be lowered further.
“Without a policy response, including a monetary response, I don’t expect much of a recovery,” Ms. Wang said.
Li You Contributing research.
