China’s Economy Strained Under Weight of COVID-19 Response

China’s Economy Strains Under Weight of COVID-19 Uncertainty
Nanjing Street, a popular tourist and shopping area in Shanghai, last month. | Image by Alex Plavevski/Shutterstock

China’s economy has enjoyed 30 years of explosive growth, but in recent months the country has experienced a significant economic slowdown over its strict lockdowns and zero-COVID approach to eliminating the virus.

Chinese authorities will determine whether their severe approach is worth the social and economic costs. In the meantime, China’s leader, Xi Jinping, said that extinguishing COVID-19 remains paramount.

“Persistence,” he said, “is victory.”

Moreover, protecting the health and safety of children and adults is worth a temporary slowdown in economic development, Xi Jinping said, according to state media reports.

The lockdowns have many Chinese citizens concerned about how they will pay for their loans, rent, groceries, and medical expenses.

Wang Yongguan, who makes his living grouting walls, discussed how difficult this year has been for many Chinese citizens.

“The local government said for sure that they would get to zero in half a month, but I reckon half a month won’t be enough,” he said. “This year won’t be any good. It wasn’t, to begin with.”

China reported its worst quarterly GDP in two years on Friday. The report showed that China’s economic growth slowed to 0.4% in the three months leading to June 30, compared with the same period last year, according to the National Bureau of Statistics.

Economists were expecting China to report 1% positive GDP growth in the second quarter, compared with the same period a year earlier, according to a survey by Bloomberg.

China’s first domestic cases of Omicron and its sub-variant, BA.5, were discovered in early July. Shang-Jin Wei, a finance professor at Columbia University, said the Chinese economy is at the mercy of more lockdowns if new COVID infections break out.

“If a recession breaks out in the U.S. or Europe, it will add further difficulty to the Chinese growth,” added the professor.

Other authorities have said China’s poor economic performance in the second quarter likely reflects investors’ growing frustration and uncertainty over the lockdowns.

Yang Weimin, an economist who advises the Chinese government, said uncertainty is the primary factor hurting economic development. He cited the confusion over effective COVID-19 prevention measures and a weakening investor sentiment caused by the country’s prolonged crackdowns.

“Uncertainty is the great enemy of action,” the economist explained.

Christopher K. Johnson, president of the China Strategy Group, said policymakers must balance “trying to bolster investor confidence” with not “undermining policies designed to clean up companies accused of malfeasance and reckless investment.”

With a global recession on the horizon and China’s controversial and economically damaging COVID-prevention policies still in effect, the second half of 2022 will likely bring more setbacks for the Chinese economy.

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