China's economy contracted sharply on zero-COVID policy; GDP plunges to 0.4 per cent in Q2

Beijing: China’s economy contracted sharply in the second quarter plunging to 0.4 per cent, the lowest in two years, as the world's second largest economy was hit hard by the zero-COVID policy that led to prolonged lockdowns in top cities and damaged businesses and industrial supply chains, according to official data on Friday.

China's economic growth fell short of expectations and grew by just 0.4 per cent in the second quarter of 2022 compared with a year earlier, the National Bureau of Statistics (NBS) announced.

It is the lowest growth rate since China's economy shrank by 6.8 per cent in the first quarter of 2020 after the coronavirus, which first surfaced in Wuhan and later spread to the world.

But at the same time, China's gross domestic product (GDP) expanded 2.5 per cent year-on-year in the first half of 2022, the NBS data said.

China has set its GDP growth target for 2022 at around 5.5 per cent.

The slowdown of the economy comes ahead of the ruling Communist Party of China’s key once-in-a-five-year congress expected to be held shortly, which is widely expected to endorse an unprecedented third term for President Xi Jinping.

Xi, 68, will be the only Chinese leader after party founder Mao Zedong to continue in power for more than two-five year terms and perhaps for life.

Playing down the sharp contraction of the economy, NBS spokesman Fu Linghui said, "We should be aware that the foundation for a sustainable and steady recovery of the economy is yet to be consolidated." This is because “externally, the risk of stagflation in the world economy is rising, the policies of major economies tend to be tightened, and external instabilities and uncertainties are adding obviously", he said.

Also “domestically, the impact of the epidemic is lingering, shrinking demand intertwines with disrupted supply, structural problems combine with cyclical problems and market entities still face operational difficulties,” Fu said.

More efforts will be made to implement a package of stimulus policy measures and keep the economic operation within a reasonable range, he said.

On Thursday, Chinese Premier Li Keqiang cautioned that the Chinese economy is going through stressful times.

Li, the second-ranking leader of CPC who oversees the economy, told a symposium that the foundation of economic recovery should be consolidated and called for efforts to bring the economy back on a normal track.

China's economic development went through "extremely rare" circumstances in the second quarter of this year, with unexpected factors triggering severe shocks and downward pressure increasing, Li said.

Under the circumstances, major economic indicators saw a substantial decline in April, he was quoted by the official media here as saying.

With a raft of economy-stabilising policies taking effect quickly, these indicators pointed to a hard-fought recovery in May and June. However, the foundation for recovery is still unstable and requires more arduous efforts to prop up the economic fundamentals, Li said.

To keep the economy running within an appropriate range, the country should place equal emphasis on stabilising economic growth and curbing inflation, particularly imported inflation. It should ensure both the intensity and rationality of the macroeconomic policy, he said.

The country, accordingly, needs to ensure that all relief measures for businesses are carried out effectively and make further moves to unclog transport, logistics and industrial and supply chains, Li said.

While creating more jobs through market-based means, the country should safeguard the employment of college graduates and migrant workers and rectify all types of discriminatory practices against jobseekers, he said.

Economists blamed the lockdowns played a major part in impacting the already slowing down of the economy.

“Second quarter GDP growth was the worst outcome since the start of the pandemic, as lockdowns, notably in Shanghai, severely impacted activity at the start of the quarter," Tommy Wu, lead economist at Oxford Economics, told the BBC.

Under its zero-COVID policy, which came under severe criticism at home and abroad, the Chinese government has shut Shanghai, China’s biggest business and industrial hub with over 25 million people for over two months to bring down the spread of the Omicron variant.

The city is yet to achieve complete normality. Likewise, Beijing and several other cities also clamped prolonged restrictions on travel and business operations prompting analysts to scale down expectations of quick economic recovery for China as the government continues to persist with a strict zero-COVID policy to deal with periodic outbreaks of the virus.

Once booming economy was also hit hard by a deep slump in the property market and weighed down by the weakening outlook for the global economy.

The property market was severely impacted by investor sentiment after China's biggest real estate developer Evergrande Group sparked off a major crisis last year by defaulting payment of installments of its whopping USD 309 billion debt.

A growing raft of monthly economic data released on Friday indicates that the economy is regaining footing.

The country's purchasing managers' index showed China's factory activities returned to expansion territory in June after three consecutive months of contraction, sending a clear signal of economic recovery, according to official media reports.

Friday's data showed that China's retail sales of consumer goods went up 3.1 per cent year on year in June, reversing the negative growths in April and May.

China's surveyed urban unemployment rate stood at 5.5 per cent in June, down from 5.9 per cent in May.