Because of the huge impact of the shutdown of Shanghai, which has 25 million people, a comparison between this spring and last spring gives “a false picture of China’s economic performance,” said Diana Choyleva, chief economist at Enodo Economics in London.
Instead, analysts said, a more accurate measure of the economy emerges by comparing the second quarter of 2023 with the previous three months, after the “zero Covid” policy was scrapped.
And by that measure, production was only 0.8 percent higher in the second quarter than the first quarter. When projected over a full year, that’s a growth rate of just over 3 percent a year, down from about 9 percent in the first quarter.
The Chinese economy is flashing many warning signs.
Exports plunged, especially in June. Weak spending is pushing China close to a dangerous trend known as deflation: consumer prices are flat, and wholesale prices paid by companies are actually falling.
Home prices slipped in smaller cities, and that decline reached big cities in June. It was a further blow to the country’s real estate and construction industries, which make up at least a quarter of the economy and have already been rocked by dozens of defaults on bonds issued outside China.
Data released by the Office for National Statistics on Saturday showed that its 70-city house price index fell at an annual rate of 2.2 percent in June, after eroding at an annual rate of just 0.2 percent in May.
Investment has stumbled, with foreign companies in particular showing little appetite to put more money into China. Local governments are short of money. Baoding, a city of 12 million people in north-central China, had to suspend most bus services last week.
“It’s not a strong recovery; the economy is quite weak,” said Wang Dan, the chief economist of Hang Seng Bank China.
Signs of further economic problems persist. The National Bureau of Statistics said on Monday that industrial production – a measure of the output of China’s factories, mines and power plants – grew 4.4 percent last month, while retail sales rose 3.1 percent from a year earlier. The General Administration of Customs announced last week that exports fell 12.4 percent in June compared to the same month last year, which was unusually strong.
Last year, after the Shanghai lockdown, retailers in the United States and Europe ordered up to three months of inventory from Chinese factories to allow for delivery delays, said Richard Fattal, co-founder of Zencargo, a London-based logistics company. Companies are now ordering half that amount, temporarily depressing China’s exports.
Some companies are also moving supply chains out of China, which will have a longer-term impact on exports, Mr. Fattal said.
Workers are also struggling. The incomes of millions of people in China were severely depressed during the pandemic, and they remain weak. Unemployment among 16- to 24-year-olds, which was particularly sharp last year, soared to the highest levels since China began reporting the statistics in 2018, reaching 21.3 percent in June, according to data released Monday.
The economy’s performance has been anemic enough in recent weeks that Lou Jiwei, a former finance minister, publicly suggested last week that the Chinese government needs to increase spending this year by between $208 billion and $277 billion to stimulate the economy.
Some hints of strength can still be found. Car sales rose 8.7 percent in June compared with the previous month, the sixth month of rising sales, said Cui Dongshu, the secretary general of the China Passenger Car Association.
Why It Matters
China has a considerable influence on global growth. The government in recent years has continued a campaign of self-confidence to make more goods at home. However, China remains the largest importer of food, oil and many other goods in the world.
But there are many signs that Chinese families don’t want to spend — including the falling prices of staples like pork, and the drastic erosion of the housing market, which has long been the main way to build wealth.
Many economists say that China’s demand for goods and services going forward will depend on Beijing’s political decisions. Some, like Mr. Lou, called for the central government to release a spending program to create jobs and stimulate consumer activity. But a huge accumulation of debts, especially at the level of local governments, made this difficult to do. Officials relied instead on monetary policy measures such as cuts in interest rates, which were already reduced last month and could be lowered further.
“If there is no political response, including a monetary response, then I don’t expect much recovery,” Ms Wang said.
He You contributed research.