China’s economic activity slumps under Xi Jinping’s extreme ‘COVID zero’ policy

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The regime is keeping tens of millions of citizens under lockdown for outbreaks of the omicron variant. Numbers that trigger alarms

A man wearing a face mask walks past a giant screen showing Chinese regime chief Xi Jinping talking at an event marking the 100th anniversary of the founding of the Communist Youth League of China amid the coronavirus disease epidemic (COVID-19) in Beijing (Reuters)
A man wearing a face mask walks past a giant screen showing Chinese regime chief Xi Jinping talking at an event marking the 100th anniversary of the founding of the Communist Youth League of China amid the coronavirus disease epidemic (COVID-19) in Beijing (Reuters)

China’s economy ‘pays the price for its policy’covid zero with the country Industrial production and consumer spending fall to worst levels since pandemic began and analysts warn there will be no quick recovery.

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This Industrial production unexpectedly fell 2.9% year-on-year in April, while retail sales contracted 11.1% in this period, weaker than the expected 6.6% decline. Unemployment rate rose to 6.1% and youth unemployment rate reached record level . Investors responded by selling everything from Chinese stocks to US index futures to oil.

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The Chinese economy has been hit hard by the regime’s solid efforts to contain the virus. with big cities like Shanghai closed for several weeks, and restrictions in many other places that cut spending, shut down factories and hampered supply chains.

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Although the high transferability of the Omicron variant puts cities at risk of repeatedly closing and reopening, the regime has doubled down on its strategy. The zero-tolerance approach drew criticism from companies, created public disappointment and derailed its ambitious growth target. beijing for the whole year, about 5.5%.

China’s leading financial newspapers published a speech by the president on Monday. Xi Jinping A sign of the growing urgency to stimulate the economy, amid the need to protect jobs and support growth, dating back six months. The rise in unemployment is a particular concern for the Communist Party on the eve of a leadership change. It will take place twice a year, and Xi is expected to win an unprecedented third term.

They prioritized ‘COVID zero’ over economic growth in April, but want both for the full year “, I said Larry Ha head of economy Chinese in Macquarie Group . “After all, ‘COVID zero’ at the expense of rising unemployment is a politically hard sell, especially in a year of such political importance. ”.

Police and security members in protective gear stand in front of cordoned off food stores after the outbreak of the coronavirus disease (COVID-19) in Shanghai, China (Reuters)
Police and security members in protective gear stand in front of cordoned off food stores after the outbreak of the coronavirus disease (COVID-19) in Shanghai, China (Reuters)

Monday’s data shows Gross domestic product in April decreased by 0.68% compared to a year ago According to forecasts, first contraction since February 2020 Bloomberg Economics. Growth could drop below 2 percent in the second quarter UBS Group AG duration S&P Global Ratings He estimated it could drop as low as 0.5%. economists Citigroup Inc. . They reduced their growth forecasts for 2022 from 5.1% to 4.2%.

What will happen now Shanghai While some businesses have taken the first steps towards reopening by gradually allowing them to resume business from Monday, there is optimism that last month’s data could mark the worst drop. Again, Many people in Shanghai are confined to their homes under strict quarantine measures. and the city’s deputy mayor said on Sunday that normal life and production will only fully resume until mid to late June.

China Benchmark CSI 300 off Healthcare and consumer essentials stocks performed the worst, down 0.8%. The yuan weakened 0.1% against the dollar to 6.7957 at 17:04 local time. The yield on 10-year government bonds, on the other hand, showed little change, amounting to 2.82%.

Disruptions in China, the world’s factory, worsen global growth prospects and complicate the inflation picture . Supply chain issues have hit companies from Tesla Inc. to Apple Inc., with export growth slowing last month to its slowest pace since June 2020 as it impacted operations in Shanghai, the world’s largest port world.

Chetan Ahya chief economist for Asia from Morgan Stanley Supply chain pressures likely peaked in April, adding there is optimism about some improvement going forward. His team said that the growth forecast for the full year is “Leaning towards our 3.5% bearish situation ”.

It looks like there will be some sort of solution to the supply chain problems in China in the coming weeks. ”, he said in an interview BloombergTV. “And the reopening of Shanghai is definitely a big factor that we’re looking at. So yes, there will be many challenges for the rest of the world, but the worst seems to be behind us. ”.

Beijing has signaled that policymakers will increase support for the economy and the prime minister. Li Keqiang recently urged the authorities to ensure stability through fiscal and monetary policy.

This People’s Bank of China It took steps to alleviate the housing crisis by lowering mortgage rates for first-time home buyers on Sunday. However, it did not change its one-year lending rate on Monday as inflationary pressure and concerns over capital outflows narrowed the scope for further easing.

It is clear that the impact of quarantines or fear of lockdowns outweighs any economic slackening and the Shanghai lockdown has had knock-on effects across the country. “, I said Wei Yao head of research for Pacific Asia and Chief Economist Societe Generale SA . If unemployment risesDoesn’t increase the urgency of adjusting zero effort measures to allow the economy to normalize, we don’t know what will happen. “, I said.

A worker in a protective suit sits near the blocked entrance to a residential complex as a man passes by amid the coronavirus disease (COVID-19) epidemic in Shanghai (Reuters)
A worker in a protective suit sits near the blocked entrance to a residential complex as a man passes by amid the coronavirus disease (COVID-19) epidemic in Shanghai (Reuters)

This Office of National Statistics stated that there were epidemics. COVID-19 They are a “high impact “It’s on the economy in April, but the effects are likely to be short-lived.”The economy is likely to recover gradually, with improvements in Covid controls and the enactment of policies to stabilize the economy. He added that he does not expect GDP to contract in the second quarter.

Fixed asset investment remained a bright spot, up 6.8% in the first four months of the year, likely bolstered by government pressure to increase infrastructure spending. Again, this figure is not enough to balance the monthly data showing the collapse in manufacturing and materials used in construction. : Cement production decreased by 18.9% in April; production of crude steel and iron and steel products fell more than 5%; automobile production fell 44%; The total production of the manufacturing industry decreased by 4.6%.

Electricity production fell 4.3 percent in April compared to a year ago Electricity demand from factories to steel mills and shopping malls fell amid virus restrictions.

mortgage interest rates

Monetary stimulus less effective in the face of Covid lockdowns Data on Friday showed businesses and consumers had little appetite for borrowing in April. Loan growth weakened sharply last month, with new yuan lending falling to the lowest level since December 2017.

Despite his unwavering stance PBOC At policy rates, banks could lower prime lending rates on Friday, which could further help lower mortgage rates for home buyers. But economists say the impact will be quite limited.

Housing market in Turkey Chinese It is a crucial source of growth for the national economy, but has been on the decline for almost a year as sales have fallen by double-digits every month since August 2021 and new home prices have also fallen after government crackdown on indebted property. developers

Real estate development investments fell 2.7% According to the data, the value of home sales fell 32% in the first four months of the year.

The biggest issue we’re seeing right now is the continued pressure on credit to the point where business confidence is shaken and thus credit demand is fundamentally damaged. “, I said Helen Qiao for economist Greater China at Bank of America in an interview BloombergTV. “Therefore, it takes more than a simple drop in interest rates to increase loan demand. ”.

(with information from Bloomberg).-

Source: Info Bae

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