China News: Economy in Freefall – Urgent Operation Launched as Pressure Mounts on Xi | World | New
China’s Bureau of Statistics announced yet more bad news on Friday when it released its latest growth figures for the second quarter of this year. A huge coronavirus lockdown in Shanghai – which has a population of 25 million – and strict protective measures elsewhere in the country have left a gaping hole in the creaking economy. In the three-month period from April to June, China’s economy grew by a meager 0.4% – the slowest pace since the pandemic began in early 2020.
This is a marked slowdown from the first quarter of this year, when the economy jumped 4.8%. Overall, for the first half of the year, growth translates to only 2.5%.
The Covid pandemic has continued to cripple the world’s largest economy, but despite enormous economic difficulties so far this year, Xi and his government seem reluctant to completely abandon their ambitious 5.5% growth target for this year. .
Late last month, the Chinese president pledged that the country “will adopt more effective measures to achieve the social and economic development goals for 2022.”
But that goal will only be achieved if the Chinese economy can find a way to grow between 7% and 8% in the last two quarters of this year.
Last month alone, regional governments issued a record £240billion of new bonds – a massive 143% increase on the previous year – meant to be used to launch new infrastructure projects.
In a desperate effort to stimulate the strained economy, local governments have reportedly been given the green light to issue far more infrastructure bonds.
The originally planned quota of £460bn has already been nearly exhausted, with Bloomberg estimating that up to £930bn could be made available for new infrastructure.
A recent slowdown in economic growth due to the new Omicron epidemic and the confinement measures that have been imposed on tens of millions of people have now put infrastructure investment in the center of attention.
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The Chinese government faces a conundrum: making sure the debt doesn’t spiral out of control, but balancing that against how the money is spent.
Officials must choose between ‘old infrastructure’ such as more rail lines, roads and airports, or so-called ‘new infrastructure’, which includes the expansion of artificial intelligence, blockchain, cloud computing, big data and 5G networks.
Speaking to German weekly economic news magazine Wirtschaftswoche, economists Jinyue Dong and Le Xia of Spanish bank BBVA believe China’s efforts may be enough to achieve 4.5% growth.
There are other key factors to this – in June exports jumped 17.9% to their strongest growth in five months, but that could be the result of a boost after the Shanghai exit of the lock.
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But Jens Hildebrandt, executive board member of the German Chamber of Commerce in China (AHK), said: “The foreign trade figures present a mixed picture.
“Exports continue to recover thanks to better functioning logistics. However, the now very weak import growth again indicates a weakening economy.”
Max Zenglein of the China Merics Institute in Berlin said: “The middle class is increasingly feeling the effects, for example through stagnating incomes or falling house prices.
“It increases the political pressure on the government to find solutions.”
But there are warnings that without a significant recovery in the economy, China could face a rise in defaults over the coming months.
Mr Zenglein added: ‘The government’s most effective economic stimulus package would be to move away from the draconian zero-Covid strategy.
Additional reporting by Monika Pallenberg.