Five Facts on China's Economic Slowdown
The Big Insight:China’s economy is struggling as a result of harsh pandemic lockdown policies, and the woes are spreading beyond the world’s second-largest economy.
As the Chinese Communist Party prepares to grant Xi Jinping a third term as the nation’s leader later this year, cementing his status as China’s most powerful leader since Mao Zedong, the country’s economy is sputtering due to COVID lockdown policies. With China importing more than $2.3 trillion in goods each year, that slowdown is being felt far beyond China’s borders.
1. In the second quarter of this year, China’s economy experienced its slowest growth rate since the start of the pandemic.
China’s economy expanded at an annual rate of just 0.4% in the second quarter, worse than economists expected and the lowest growth rate since China effectively shut down in early 2020 to combat COVID-19. Beijing had set a growth rate target of 5.5% for 2022, but the World Bank projects growth will be just 4.3%. IMF is even more pessimistic, now projecting growth of just 3.3%. China’s growth regularly exceeded 10% per year a decade ago.
2.Ongoing lockdowns in China are impacting approximately 247 million people.
China’s policy of strict total lockdowns to prevent the spread of COVID continues to have a harsh economic impact. According to Japanese securities firm Nomura, lockdowns in 31 cities are idling the equivalent of $4.3 trillion in annual gross domestic product. In April, zero automobiles were sold in Shanghai — a city with a population of 25 million — due to lockdowns.
3. Nearly one in five young workers in China are currently unemployed.
Official unemployment is about 5.5% across all age groups, but 19.9% of those ages 16-24 are unemployed, and fewer than 15% of this year’s college graduates have secured jobs.
The worsening economic situation has led to protests and mortgage payment boycotts, and surveys have indicated that wealthy Chinese worth an estimated $48 billion are considering leaving the country.
4. Retail sales in China rose by 2.7% in July, far short of analyst expectations of about five percent.
Sluggish sales in a marketplace with more than a billion consumers are having an impact on U.S. firms. In 2021, General Motors and 3M each generated 11% of their total sales in China, while Tesla generated more than one-quarter of its sales there. Declining demand in China has resulted in rare trade deficits for Germany and South Korea with China.
5. In 2020, foreign companies with manufacturing operations in China accounted for 36% of China’s total exports.
The idling of so much of the labor force has slowed production inside China at plants owned by U.S. companies.
In July, Apple — which gets about one-fifth of its total revenue from China, Taiwan, and Hong Kong — reported a one percent decline in revenue from the region over the past year. Goldman Sachs says companies can anticipate zero percent growth from the China market this year, down from its earlier estimate of four percent.