Covid reapplies the brakes to Chinese growth

Chinese economic growth slowed sharply in the three months to June, weighed down by the government’s harsh Covid control measures, especially in Shanghai.

GDP rose by an annual 0.4%, China’s National Bureau of Statistics said on Friday, down from the 4.8% rate of the March quarter.

The government of President Xi Jinping has a growth target for this year of ‘about 5.5%’ so the second half slide will make it hard for that to be met unless growth rebounds strongly this quarter.

With more Covid infections and control measures across parts of the country at the moment – including Shanghai – a strong recovery looks unlikely.

A growth rate of 0.4% annual is on the edge of a contraction (and could be easily revised to no growth at all by revisions, although China doesn’t do many revisions)

The slide was driven by the harsh Covid-driven lockdowns in Shanghai and other parts of the country (including most of Beijing and much of Jilin province in the northeast as well as much of Guangdong in the south) in April and May.

The June quarter’s outcome was the weakest pace of expansion since a contraction in the first quarter of 2020 (a fall of 6.8% annual), when the first wave of Covid hit the country, forcing the government into massive lockdowns.

Quarter on quarter, GDP fell 2.6% from the March quarter, a much larger fall than the 1.4% rise in the March quarter from the December quarter.

China’s industrial production rose by an annual 3.9% in June, below market consensus for a 4.1% rise but much faster than the 0.7% gain in May.

Economists said all sectors saw higher production following the relaxation in COVID-19 curbs in some major cities.

Retail sales grew as well – up an unexpectedly strong 3.1% year-on-year in June. That easily topped market estimates of a flat reading and was a big turnaround from the 6.7% slide in May. The recovery was also due in part to a change in approach from the government to lockdowns, with food shops, markets and other essential outlets remaining open.

The rebound came following a decline in COVID-19 cases and an easing in restriction. For the January to June period, retail sales fell 0.7% – a sign of the damage done by the harsh Covid control measures seen for much of the six months in much of the country.

And China’s urban investment grew by 6.1% in June, down from the 6.2% rate in May and forecasts for a 6% rate.