China’s GDP Growth Slows To 0.4%

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What has happened?

China’s economy has recorded its worst quarterly performance in over two years, after months of harsh Covid lockdowns wreaked havoc across the country.
Gross domestic product in the world’s second largest economy expandedby just 4% in the three months to June 30, compared with the same period last year, according to the National Bureau of Statistics (NBS) on Friday.
That was sharply lower than the 4.8% increase it registered in the previous quarter and far below the 1% growth estimated by economists in a Reuters poll.
It was the weakest performancesince the first quarter of 2020, when China’s economy came to a near standstill as it battled to contain the initial coronavirus outbreak that started in Wuhan.
In that quarter, GDP contracted 6.8%.

For the first half of this year, the economy expanded 2.5%, way below the 5% annual target set by the government.
Beijing admitted Friday that reaching its GDP goals this year would be hard.
Goldman Sachs Group Inc. promptly cut its full-year growth forecast to 3.3%, saying the figures suggest Covid lockdowns last quarter took a heavier-than-expected toll on the economy.
The slowdown means Beijing will miss its GDP target of about 5.5% by a wide margin this year, the first time that’s likely to happen.
The government didn’t set a target in 2020, during the first wave of the coronavirus outbreak, and only missed it slightly by 0.2% point in 1998.

Chinese policymakers face mounting challenges to keep growth steady,
As the country contends with a sharp slowdown in activity due to Beijing’s stringent zero-Covid policy,
A bruising regulatory crackdown on the private sector, and a real estate crisis that is causing rising bad debts at banks and growing social protests.

Since March, Beijing’s uncompromising attitude to stamping out the virus led to months of lockdowns in dozens of cities across the country, including Shanghai, the nation’s financial and shipping hub.
Millions of residents were confined to their homes, shops and restaurants were closed, and factories were shut, hammering consumer activity and disrupting supply chains.
Authorities began reopening the economy at the start of last month, lifting restrictions in some key cities.
The manufacturing and services industries have shown signs of improvement in recent weeks.
But Beijing’s adherence to the zero-Covid stance has caused huge uncertainty for businesses and dampened investor sentiment.
Consumer spending remains weak, while the job market is under significant pressure — youth unemployment hit a new record high of 19.3% in June.
The heavy toll of Shanghai’s lockdown was clear from the data, with the city’s economy contracting 7% in the second quarter from a year earlier.

Making matters worse for the economy, Friday’s data showed no sign of improvement in the slump in China’s property investment,
Which drives demand for goods and services worth about 20% of China’s GDP.
Banks have been rattled this week by reports that households in dozens of cities have stopped paying mortgages due to property developers’ failure to complete construction of their homes.

With China a major buyer of commodities from oil to coal to corn, the economy’s slowdown is a blow to a global economy already hit by recession fears.
Data earlier this week showed China’s import growth slowed to just 1% in June.

China’s outlook remains highly uncertain as President Xi Jinping stays committed to his Covid Zero approach of stamping out infections,
With the emergence of the highly-infectious BA.5 sub-variant in several cities raising the threat of new lockdowns.
The number of confirmed Covid cases on Friday hit the highest since May.
Xi has de-emphasized the importance of the GDP target in recent years, Writing into a key Communist Party document last year that it should no longer be a “sole criterion of success.”

Q) Which of the following actions can be taken to combat inflationary pressures in an economy?