Xi Jinping's 'zero-covid' policy torpedoes China's GDP

Tight lockdowns slowed growth to 0.4% in the second quarter. 5.5% year-end growth target almost unattainable. Beijing relies on infrastructure investment for recovery. Xi needs the economy to recover ahead of the 20th Communist Party Congress.

Beijing (AsiaNews) - Xi Jinping's 'zero-covid' policy of strict lockdowns and repeated mass testing has torpedoed China's gross domestic product in the second quarter of the year. According to official data, the national GDP grew by only 0.4 per cent year-on-year in the April-June period, much lower than experts' forecasts, which put it at around 0.9-1 per cent.

This is the worst performance of the Chinese economy since 1992, excluding the -6.9% in the first quarter of 2020, at the height of the first wave of the pandemic. Looking at the first quarter of the year, the picture is even worse, with an economic contraction of 2.6% (expectations were for -1.5%).

Forecasts are for a slow improvement between now and the end of the year, but the outlook is threatened by the risks of a global recession, problems in global supply chains and the continued resurgence of Covid-19 outbreaks in the country. At current rates, all analysts agree that Beijing will fail to meet its annual growth target set at 5.5%; in the first half of the year it stands at 2.5%.

To attempt a recovery, Beijing is aiming at a vast infrastructure investment plan, which is expected to be around 500 billion yuan (about 74 billion euro). Chinese authorities point to the improvement of the economy in June after the end of the lockdown in Shanghai and Beijing. Last month, industrial production grew by 3.9 %, fixed investments by 6.1 % and, above all, consumption by 3.1 %.

Compared to May, unemployment dropped from 5.9% to 5.5%, but youth unemployment exploded to a record level of 19.3%. Numbers that risk keeping domestic consumption low, also confirming an obvious social problem with regard to young people.

Observers also point out that house prices and property investments have fallen: a further obstacle to recovery. This gives the government little room to cut interest rates and inject liquidity into the domestic market. Rates are already low and a further drop would push investors towards US bonds that give higher yields.

Without a decisive recovery, Xi could see his position weaken in the run-up to the 20th Chinese Communist Party Congress next autumn, forcing him even more to compromise with his opponents in the Party in order to hold onto power.

• china
• beijing
• shanghai
• economy
• gdp
• recession
• covid-19
• pandemic
• lockdown
• xi jinping
• li keqiang