SINGAPORE—China recorded its weakest growth rate in more than two years, a measure of the costs imposed on the world’s second-largest economy by Beijing’s zero-tolerance approach to Covid-19.
Gross domestic product expanded at a 0.4% annual rate in the April to June period, China’s National Bureau of Statistics said Friday. That was the worst performance since the first quarter of 2020, when the pandemic first erupted and the economy shrank 6.9% after the Central Chinese metropolis of Wuhan became the first city in the world to lock down to stem the spread of Covid-19. Economists polled by The Wall Street Journal had forecast China’s economy to grow 0.9%.
The scale of the slowdown highlights the damage caused by stringent lockdowns that left millions of Shanghai residents confined to their homes for two months and many businesses closed as authorities tried to snuff out a coronavirus outbreak in China’s wealthiest city.
Lockdowns weren’t confined to China’s prosperous coast: Outbreaks have also closed car factories and disrupted farming in the northern province of Jilin and pummeled activity in other towns and cities. The shutdowns had strangled consumer demand and business activity, resulting in the cratering of retail sales and industrial production.
Four regions affected by city-level mobility restrictions reported outright contractions compared with the previous year. Output in Shanghai and Jilin tumbled 13.7% and 4.5% respectively. Beijing and Jiangsu, a prosperous industrial province neighboring Shanghai that relies on the city for much of its logistics and finance, also recorded year-over-year dips in economic activity. The two had placed parts of their region under some stay-at-home orders when coronavirus cases appeared.
On a quarter-to-quarter basis, China’s economy shrank 2.6%, data showed, marking only the second such contraction since comparable records began in 2010.
Official data show a modest recovery is now under way, sparked by the easing of public-health restrictions, which has released pent-up demand for Chinese goods and services. But already, there are warning signals about the future in the labor market, and from business and consumer surveys.
Even with some post-lockdown recovery, China is on course for a low-growth year, economists say. Unemployment is stubbornly high, real estate is slumping and exports are likely to weaken as Western economies shift into lower gear. Youth unemployment hit a new high in June, with almost one in five workers aged 16 to 24 out of work.
A feeble year for China would deprive the global economy of a dependable engine of expansion when rising interest rates and soaring inflation is squeezing growth in the U.S. and Europe.
“If other important parts of the global economy remain weak or go into recession, it seems highly unlikely that China can become a locomotive for global growth as was the case after the global financial crisis,” said Jonathan Ashworth, senior China economist in London at Fathom Consulting.
Beijing earlier this year set a goal of expanding around 5.5% in 2022 as a whole, a target that now looks increasingly out of reach. Most economists think it might muster about 4%.
Most of the second-quarter hit was concentrated in April, when lockdowns were at their most widespread. Retail sales plunged by an annual 11.1% in April as stores closed and shoppers stayed home, according to data already published. Industrial production shrank 2.9% as factories fell idle.
Sportswear maker
Nike Inc.
said 60% of its business in China was affected by lockdowns during its fiscal fourth quarter, which ended May 31. Executives told analysts on an earnings call that fourth-quarter revenue fell 20% compared with a year earlier after adjusting for currency fluctuations, while earnings before interest and tax were down 55%.
China lifted restrictions in most areas by May, though Shanghai stayed under lockdown until the beginning of June. The reopening helped some economic activity recover.
Data released on Friday showed retail sales rose an annual 3.1% in June, bouncing back from a 6.7% fall the previous month. Industrial production also recovered after lockdowns eased, rising an annual 3.9% in June after a 0.7% expansion in May.
Chinese retail sales rose an annual 3.1% in June.
Photo:
alex plavevski/Shutterstock
For some businesses, the disruptions persisted beyond the shutdowns.
Roy Huang,
who runs fiber-optic equipment maker Shenzhen DYS Fiber Optic Technology Co., said that even after the southern city of Shenzhen exited a lockdown in March, workers still couldn’t return to his factory because of travel restrictions.
“Our production was greatly affected by the epidemic,” said Mr. Huang, who estimates his capacity fell by half between February and April. His profit was also squeezed by rising costs for transport and raw materials, he said.
Fixed-asset investment rose 6.1% on year in the first half of the year, data showed, down slightly from a 6.2% increase in the January-May period. China is in the grip of a real-estate slump as developers struggle with heavy debts, and a planned infrastructure boost has yet to yield big benefits.
Exports, which powered China out of its first Covid-19 slump in 2020 and again in 2021, grew strongly in May and June as cities reopened. But overseas demand for Chinese goods and services is expected to weaken as Western consumer spending slows.
Already, data from export powerhouses such as Taiwan and South Korea suggest foreign demand for manufactured goods is starting to fade. In China, business surveys showed that a gauge of manufacturers’ export orders in June remained at a level that signals order books are shrinking.
Above all, economists say a pandemic policy in which any Covid-19 outbreak is to be smothered with sharp restrictions on daily life means that consumers are hesitant to spend and businesses are nervous about investing and hiring. An index of consumer confidence in China was down 29% in May compared with January.
Unemployment in urban China eased in June, data Friday showed, to 5.5%, from 5.9% previously.
Office workers lined up at a Covid-19 testing booth in Shanghai this week.
Photo:
Qilai Shen/Bloomberg News
But joblessness among workers aged 16 to 24 rose, reaching 19.3%, up from 18.4% in May. That is the highest reading since comparable records began in 2018. Economists and policy makers fret about youth unemployment because it can have long-term effects on workers’ skills and productivity, which can squeeze an economy’s potential for growth.
Katrina Ell,
a senior economist on China at Moody’s Analytics in Sydney, said the high rate of youth joblessness suggests firms aren’t willing to take on new staff and invest in training amid the uncertainty created by the government’s zero-Covid approach.
“There’s an ongoing reluctance to invest in the future,” she said.
—Bingyan Wang and Grace Zhu in Beijing contributed to this article.
Write to Jason Douglas at jason.douglas@wsj.com
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