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China’s economic growth sees major slump after months of strict Covid lockdowns

Topline

China’s economy experienced a major slowdown in growth in the second quarter of 2022, official data showed on Friday, a result that should raise new questions about the feasibility of the country’s “zero-Covid” strategy that has caused severe economic disruption. during that time, including a nearly two-month lockdown of its Shanghai financial hub.

Highlights

According to data from China’s National Bureau of Statistics for the quarter ending in June, China’s gross domestic product (GDP) rose a meager 0.4% from the same period last year, a sharp decline from the 4.8% growth figure in the first quarter.

With the exception of a 6.9% drop in GDP in the first quarter of 2020 caused by the start of the pandemic, the figures for the second quarter of 2022 are the worst on record for China since data tracking began. current in 1992, according to Reuters.

Shanghai was the hardest hit region, with its economy shrinking 13.7% in the quarter as businesses, factories and offices across the city remained closed and residents were forced to stay at home for nearly two months as she battled a major Covid-19 outbreak.

The Chinese capital of Beijing, which has also seen limited restrictions due to an epidemic, saw its economy contract by 2.9% while the economy of Jilin – which also had to endure long Covid closures – decreased by 4.5%.

Reacting to poor economic data, China’s CSI 300 index fell 1.70% in afternoon trading, while the Shanghai Stock Exchange’s composite index fell 1.64%.

To monitor

GDP growth of 0.4% in the second quarter is significantly below analysts’ forecasts of 1.0% to 1.2%. The unexpectedly poor performance in the second quarter likely means China will miss its 5.5% annual growth target for 2022, according to Bloomberg.

Key Context

Earlier this year, China’s largest city and its financial hub suffered its worst Covid-19 outbreak since the pandemic began, prompting authorities to bring the city under lockdown. The lockdown was in line with China’s zero Covid policy which aims to completely eliminate the local spread of the virus using block-by-block quarantines and mass testing. However, the length and severity of Shanghai’s lockdown sent major shockwaves through global supply chains and even led to a rare wave of public dissent from city residents who complained about food shortages and arbitrary quarantine measures. China remains one of the few to stick to the zero-Covid approach and it has drawn some skepticism from international experts and even its own residents. Despite this, Chinese President Xi Jinping has strongly backed the strategy, saying the country must be prepared for short-term economic hardship instead of “harming people’s safety and physical health” in pursuit. of a herd immunity strategy.

Further reading

China’s economy slows sharply in second quarter as global risks cloud outlook (Reuters)

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