A comparison of this spring and last spring provides a “misleading picture of China’s economic performance,” said Diana Choyleva, chief economist at Anodo Economics in London, because of the huge impact of the shutdown of Shanghai, which is home to 25 million people.
Instead, analysts said, comparing the second quarter of 2023 with the previous three months after the “zero Covid” policy is scrapped gives a more accurate measure of the economy.
And by that measure, output in the second quarter was only 0.8 percent higher than in the first quarter. When this is projected for the full year, that’s a growth rate of a little over 3 percent per year, down from about 9 percent in the first quarter.
There are several warning signs showing up in China’s economy.
Exports declined, especially in June. Weak spending is pushing China closer to a dangerous trend known as deflation: consumer prices are flat, and wholesale prices paid by companies are actually falling.
Housing prices are falling in smaller cities, and in June the decline spread to larger cities. It was another blow to the country’s real estate development and construction industries, which make up at least a quarter of the economy and have already been rocked by dozens of defaults on bonds issued outside China.
Data released by the National Bureau of Statistics on Saturday showed that a 70-city index of housing prices fell by an annual rate of 2.2 percent in June after declining by an annual rate of only 0.2 percent in May.
Investment has faltered, with foreign companies in particular showing little willingness to invest more money in China. Local governments are short of cash. Baoding, a city of 12 million people in north-central China, had to suspend bus service for most of last week.
“It is not a strong recovery; The economy is quite weak,” said Wang Dan, chief economist at Hang Seng Bank China.
There are signs of increasing economic problems. The National Bureau of Statistics said on Monday that industrial output – a measure of output from China’s factories, mines and power plants – rose 4.4 percent last month, while retail sales rose 3.1 percent from a year earlier. The General Administration of Customs announced last week that exports in June fell 12.4 percent compared to the same month last year, which was unusually strong.
Last year, after the Shanghai lockdown, retailers in the United States and Europe ordered three months’ worth of inventory from Chinese factories to make up for delivery delays, said Richard Fatal, co-founder of London-based logistics company ZenCargo. Companies are now ordering half the quantity, which has temporarily reduced China’s exports.
Mr. Fattal said that some companies are also moving the supply chain out of China, which will have a long-lasting impact on exports.
The workers are also struggling. Millions of people in China have had their incomes severely affected during the pandemic and remain vulnerable. Unemployment among 16- to 24-year-olds, which has been particularly acute for the past year, reached 21.3 percent in June, the highest since China began announcing the figures in 2018, according to data released Monday. is the highest level.
The economy has performed so poorly in recent weeks that former finance minister Lu Jiwei publicly suggested last week that the Chinese government needs to increase spending between $208 billion and $277 billion this year to stimulate the economy. need
Some signs of strength can still be found. Unemployment remained low at 4.1 percent for those ages 25 to 59. Car sales in June rose 8.7 percent from the previous month, the sixth month of rising sales, said Cui Dongshu, secretary general of the China Passenger Car Association.
why it matters
China has a major influence on global development. In recent years the government has launched a self-reliance campaign to make more goods at home. Nevertheless, China remains the world’s largest importer of food, oil and many other goods.
But there are many signs that Chinese households are unwilling to spend – including falling prices of staple foods such as pork and a sharp downturn in the housing market, which has long been the primary way to build wealth.
Many economists say that going forward, the demand for goods and services in China will depend on the policy decisions of Beijing. Some, such as Mr. Lu, have called on the central government to launch a spending program to create jobs and stimulate consumer activity. But the huge accumulation of debt, especially at the level of local governments, has made this difficult to do. Officials have instead relied on monetary policy measures such as interest rate cuts, which were eased last month and may be reduced further.
“If there is no policy response, including a monetary response, I don’t expect much of a recovery,” Ms. Wang said.
li yu Contributed to research.
