Photo credit: AP Photo/Kin Cheung
China’s economy is currently suffering as it recorded its lowest performance in two years. The dismal condition within the Chinese economy is attributed to the periodic Covid lockdowns across the country.
Over the past months, major economic hubs in big cities across China have been closing and opening at times depending on the regulations imposed by authorities relating to the drop and surge of Covid cases.
The National Bureau of Statistics reported that the Gross Domestic Product (GDP) of China, considered the world’s second-largest economy, only increased by 0.4% within three months.
When compared to the data from the previous quarter, the difference is starkly huge; the last quarter recorded a 4.8 increase. The GDP of the country has shrunk by 2.6%.
Since 2020, the country has experienced its weakest performance. The worst was during the first onslaught of the Covid outbreak in Wuhan, where all business and public operations came to a standstill. At the time, the GDP shrank by 6.8%.
The Chinese government predicts an economic expansion of 5.5%. However, the economy only expanded by 2.5%, just half of what the authorities expected. According to Beijing authorities, the current conditions will make it hard for the country to reach its target.
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National Bureau of Statistics spokesperson Fu Linghui said, “There are challenges to achieving our expected economic growth target for the whole year.” Even so, Fu expects that the economy still has a chance to recover during the second half of the year.
Economy challenged by mounting factors
The Chinese economy has been bombarded by many factors which hinder it from reaching its economic goals this year. The main factor is the strict zero-Covid policy of the country, which prohibits the business sector from completely recuperating. To add, there are also social protests happening in several areas of the country, as well as bank debts.
Beijing has been steadfast in its fight against Covid and its commitment to completely eradicating the virus within the country. However, the stringent measures undertaken by the authorities have unintentionally hampered the operations of the necessary industries that keep the economy afloat.
Last month, Chinese authorities reopened the economy, allowing industries to restart. The restart of the economy caused businesses to recover. While this is so, business owners still felt unsure about the direction of the economy as Beijing had to take other measures to zero in on Covid. In June, the unemployment rate among the youth was 19.3%.
Chaoping Zhu, a global market strategist from JP Morgan Asset Management, said that the outcome of the latest quarter “reflected the significant shocks from the Omicron outbreak and corresponding stringent measures adopted in major cities.”
Zhu added, “Looking forward, we expect to see continued economic recovery in the second half of this year, mainly supported by government-led infrastructure investment.”
According to Zhu, the economy will get better if Chinese authorities will ease the Covid restrictions that they currently have in place. Consumer confidence and business outlook will get better.
Meanwhile, China economist for Macquarie Group, Larry Hu, said that the GDP should grow more than 7% if the country wants to achieve the expected 5% growth for this year. He said, “It is impossible without a significant escalation of policy stimulus from the current level.”
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While other industries are seeing slight positive effects of the reopening of the economy, the property sector is currently in a slump. In June of last year, the investment in real estate dropped 9.4%, adding to its 7.8% fall a month preceding it. Calculations from Macquarie Capital revealed that the sales of property per floor area lessened 18% a month ago, in addition to the 32% drop last May.
“The property woe is causing rising social instability, evidenced by the recent mortgage boycott,” explained Hu.
“Decisive and effective regulatory measures must be taken to prevent the mortgage boycott from developing into a systemic risk,” stated Zhu from JP Morgan Asset Management.
Source: CNN
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