China’s economy grew at a record 0.4%, the weakest since the Wuhan lockdown

China’s economy grew at a record 0.4%, the weakest since the Wuhan lockdown

SINGAPORE—China recorded its weakest growth rate in more than two years, a measure of the cost imposed on the world’s second-largest economy by Beijing’s zero-tolerance approach to Covid-19.

China’s National Bureau of Statistics said on Friday that gross domestic product expanded at an annual rate of 0.4% in the April-June period. It was the worst performance since the first quarter of 2020, when the pandemic first emerged, and the economy shrank 6.9% after the central Chinese metropolis of Wuhan became the first city in the world to go into lockdown to prevent the spread of Covid-19. Economists polled by the Wall Street Journal had forecast China’s economy to grow 0.9%.

The scale of the slowdown highlights the damage caused by a strict lockdown that confined millions of Shanghai residents to their homes for two months and many businesses closed as authorities try to quell a coronavirus outbreak in China’s richest city.

Lockdowns have not been limited to China’s prosperous coast: Outbreaks have also shut down car factories and disrupted agriculture in the northern province of Jilin, and disrupted operations in other towns and cities. The shutdowns stifled consumer demand and business activity, halting retail sales and industrial production.

The four regions affected by city-level mobility restrictions reported absolute contractions compared to the previous year. Output in Shanghai and Jilin fell by 13.7% and 4.5% respectively. Beijing and Jiangsu, a prosperous industrial province neighboring Shanghai that depends on the city for its logistics and finance, have also seen declines in economic activity over the years. The two put parts of their region under stay-at-home orders when coronavirus cases surfaced.

On a quarter-to-quarter basis, China’s economy shrank 2.6%, the data showed, only the second such contraction since comparable records began in 2010.

Official data shows that a moderate recovery is now underway, stemming from the easing of public health restrictions, which has revealed pent-up demand for Chinese goods and services. But already, there are warning signs about the future in the labor market and from business and consumer surveys.

Even with some post-lockdown recovery, China is on track for a low-growth year, economists say. Unemployment is stubbornly high, real estate is falling and exports are likely to weaken as Western economies shift into lower gear. Youth unemployment hit a new high in June, with nearly one in five workers aged 16 to 24 out of work.

A weak year for China would deprive the global economy of a reliable engine of expansion while rising interest rates and rising inflation are weighing on growth in the US and Europe.

“If other important parts of the global economy remain weak or go into recession, it seems highly unlikely that China can become a locomotive for global growth as it did after the global financial crisis,” said Jonathan Ashworth, senior China economist in London. Fathom Consulting.

Earlier this year Beijing set a target of around 5.5% overall expansion in 2022, a goal that now looks increasingly out of reach. Most economists think it could collect around 4%.

Most of the second-quarter hits were concentrated in April, when lockdowns were at their most widespread. According to data already released, retail sales fell 11.1% year-on-year in April as stores closed and shoppers stayed home. Industrial production fell by 2.9% as factories idled.

Sportswear manufacturer Nike Inc.

It said 60% of its business in China was affected by the lockdown in its fiscal fourth quarter, which ended May 31. Executives told analysts on an earnings call that fourth-quarter revenue fell 20% from a year earlier after adjusting for currency fluctuations, while earnings before interest and taxes were down 55%.

China lifted restrictions in most areas by May, although Shanghai remained under lockdown until early June. The reopening has helped restore some economic activity.

Data released Friday showed retail sales rose 3.1% annually in June, rebounding from a 6.7% decline the previous month. Industrial production also recovered after the lockdown was eased, growing 3.9% year-on-year in June after a 0.7% expansion in May.

Chinese retail sales rose 3.1% annually in June.


Alex Plavevsky/Shutterstock

For some businesses, disruptions persisted beyond the shutdown.

Roy Huang, who runs fiber-optic equipment maker Shenzhen DYS Fiber Optic Technology Co., said that even after the southern city of Shenzhen emerged from lockdown in March, workers have yet to return to his factories because of travel restrictions.

“Our production was greatly affected by the epidemic,” said Mr. Huang, who estimates that his capacity was cut in half between February and April. He said that due to increase in cost of transportation and raw materials, his profit has also decreased.

Fixed-asset investment rose 6.1% in the first half of the year, the data showed, slightly lower than the 6.2% increase in the January-May period. China is in the grip of a real-estate slump as developers struggle with heavy debt and the planned infrastructure boom has yet to reap major benefits.

Exports, which pulled China out of its first Covid-19 recession in 2020 and again in 2021, grew strongly in May and June as cities reopened. But overseas demand for Chinese goods and services is expected to weaken as Western consumer spending slows.

Meanwhile, data from export powerhouses such as Taiwan and South Korea suggest overseas demand for manufactured goods is beginning to fade. In China, the business survey showed that a measure of manufacturers’ export orders in June remained at a level that suggests the order book is shrinking.

After all, economists say a pandemic policy that stifles any Covid-19 outbreak with severe restrictions on daily life means consumers are hesitant to spend and businesses are nervous about investing and hiring. China’s consumer confidence index fell 29% in May from January.

Unemployment in urban China fell in June, data showed on Friday, to 5.5% from 5.9% previously.

Office workers line up at a Covid-19 testing booth in Shanghai this week.


Qilai Shen/Bloomberg News

But unemployment among workers aged 16 to 24 rose, rising to 19.3% from 18.4% in May. This is the highest reading since comparable records began in 2018. Economists and policymakers are concerned about youth unemployment because of the long-term effects it can have on workers’ skills and productivity, which can suppress the economy’s growth potential.

Katrina L, senior China economist at Moody’s Analytics in Sydney, said the high rate of youth unemployment suggests firms are unwilling to invest in hiring new workers and training amid the uncertainty created by the government’s zero-covid approach.

“There is an ongoing reluctance to invest in the future,” he said.

China’s zero-covid approach

write down Jason Douglas at

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