The imposition of lockdowns in several parts of the country have caused a reduction in industrial activity in China. Experts say that the manufacturing giant may not achieve it’s target growth rate of 5.5% (FY22) this year.
China experienced a slow paced economic growth in the second quarter of 2022 due to the imposition of lockdowns throughout the country. The re-outbreak of Covid-19 badly affected the nation’s economy, and the arrival of the highly- contagious BA.5 variant became a threat. A worldwide recession approaching added further pressure onto the ‘factory of the world’.
PRC’s Gross Domestic Product increased by a meagre 0.4 per cent in the present quarter as compared to FY21. This is the lowest growth rate experienced by China since 1992 if we exclude the 2020 initial Covid era. The Reuters’ poll of analysts had forecasted a 1% growth for the nation, but it instead saw a steep downfall from 4.8% (last quarter) to 0.4% in the April- June quarter.
“China’s economy has stood on the edge of falling into stagflation, although the worst is over as of the May-June period.”- Toru Nishihama (Chief Economist, Dai- ichi Life Research Institute).
Along with several other major production centers across China, Shanghai, the country’s commercial capital was also under lockdown in March and April. This caused a year- on – year diminution of 13.7 per cent in the GDP during the second quarter. The Asian nation’s capital, Beijing also faced a 2.9% contraction in output in Q2.
China saw a successful first quarter as compared to FY21, however, the imposition of lockdowns and poor growth in Q2 hint that the country may need some time for economic recovery. A 2.5% increase in GDP in Q1 was seen as compared to the FY21, but the Q2’s weak GDP caused Yuan to reach a 2 month low.
Can China still achieve it’s 5.5% growth target?
Virus- hit China imposed a ‘zero- covid strategy’ to overcome its health struggles. However, analysts have stated that it is nearly impossible for the country to achieve its growth target this year unless it removes this plan. With the current regulations imposed by the country to curb the covid outbreak, it’s growth for FY22 is predicted to be 4% by Reuters.
The socialist nation is also experiencing consumer inflation, though not as extensively as other nations worldwide. Experts such as Jacob Cooke (CEO of WPIC) believe that lockdowns are the primary reason for the drag on consumption. However, they’re positive that if the impositions aren’t kept strict in the future, the country may experience economic recovery.
Chinese economic sectors that experienced growth this quarter
China’s industrial output showed a 3.9% growth in June as compared to 0.7% in May. The fixed- asset investment increased by 6.1% during the first 6 months of 2022 as compared to 2021. The country’s retail sales displayed the quickest growth after the lifting of a 2- month lockdown in Shanghai. The retail sales beat a drop rate growth prediction and reached a 3.1 per cent growth in June.
However the property sector in the country suffered a shaky recovery in Q2. Homebuyers across the country stopped mortgage payments until developers resumed constructions of homes that were presold. As a result, property investments and sales in the People’s Republic of China saw a 18.3% growth decline.
China is one of the fastest growing economies in the world and it is also an integral manufacturer and exporter globally. But the Covid- 19 pandemic gruesomely affected China and other nations worldwide. As newer variants have begun to spread once again in the still recovering Chinese economy, the aim of achieving a 5.5 per cent growth has become a big challenge for the nation. Therefore, it is predicted by experts that the Chinese economy will be experiencing a lower than expected growth rate in FY22, unless it magically recovers itself in the upcoming Q2 & Q3.
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