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Experts blame COVID lockdowns for China's economic stumbled in the 2nd quarter

LEILA FADEL, HOST:

For most of the pandemic, China's economy has been a star performer. In fact, it's been a star performer for most of the past 40 years. But earlier this month, the government reported that the economy was weaker than many had expected. To help us understand what's going on with China's economy and why it matters, we're joined by NPR's John Ruwitch in Beijing. Hi, John.

JOHN RUWITCH, BYLINE: Hey, Leila.

FADEL: So in a nutshell, how bad are things right now with China's economy?

RUWITCH: Yeah. Well, the latest quarter we have data for is Q2, which is the April, May, June period. The economy grew but barely, 0.4% year on year. And compared with Q1, it actually shrunk. And this is bad, right? This is an economy that's used to 6%, 7%, 8% growth. There's a big difference. The big picture is that, you know, growth has been slowing in recent years, and that's partly intentional. The government's trying to create a more balanced economy. But here's the thing - this year, the country's economic and business challenges, which are real, have been exacerbated by one sort of big, overriding political priority.

FADEL: So what's that political priority?

RUWITCH: Yeah, that's dynamic zero - right? - zero-COVID. The authorities in China have pretty much decided that they're not going to live with COVID. They want to eradicate it. And the problem has been that omicron is really hard to contain. This has led to painful lockdowns, like what happened to Shanghai in April and May, as well as many other cities. The borders are very tight. It's hard to get in and out of China. And this all casts uncertainty over pretty much everything. Dan Wang is the Shanghai-based chief economist at Hang Seng Bank. She's been watching China's economy for a decade and says she hasn't really seen anything like this.

DAN WANG: When it comes to economic policies, right now, basically, all the economists have stopped giving predictions because of the unpredictable COVID situation.

RUWITCH: Yeah, that unpredictable situation is suppressing economic activity and compounding the effects of other challenges to the economy.

FADEL: What are those other challenges?

RUWITCH: One key area that's been bubbling up is real estate. By some estimates, it's giant. It's a quarter of the entire economy. Before omicron, the government had started to crack down on excessive debt in the property sector. It was bitter medicine. Economists were in favor of it, many of them were. But zero-COVID has just complicated things. It's driven down economic growth. That has pushed down confidence in the economy. People who aren't confident aren't buying property, right? So that means less income for developers that are already feeling a squeeze from the policy side. And it's exacerbating this downward spiral. So in the past few weeks, we've seen this sort of snowballing threat to add to this of nervous home buyers who are planning to boycott mortgage payments on incomplete construction projects. In China, you can - you start paying a mortgage basically in most cases while your apartment is still being built, and many are threatening to pull the plug.

FADEL: OK. So a slowing real estate sector; what about the other sectors of the economy?

RUWITCH: Well, in places that have been locked down, like Shanghai, like many other cities, you know, they're suffering. Anecdotally, you know, you hear about restaurants, barbershops, these type of things, small businesses that are being hammered and that have gone under. For multinationals, AmCham, the American Chamber of Commerce, has done some polls that suggest people aren't exiting so much as they are just holding off on making new investments in China. You know, on top of that, we've got these dicey global conditions - right? - inflation in the U.S. and in Europe. There's the Ukraine war. There are still shipping woes around the world. A few weeks ago, I was in this town called Huizhou, which is in southern China - it's a manufacturing hub - and met Hu Yuting who owns a factory that makes light fixtures and chandeliers for export to the U.S.

HU YUTING: (Speaking Mandarin).

RUWITCH: So he's saying that he estimates that his business is down about 70% this year. And it's for all the reasons I just mentioned - inflation, lockdowns, shipping hassles, those type of things. He's cut his workforce nearly in half.

FADEL: So what does this all mean for China, for the global economy?

RUWITCH: The big question is, you know, how long zero-COVID is going to last. As long as it's in place, average Chinese people are going to face disruptions. They're not going to know when their apartment's going to be open or their neighborhood. The global economy, you know, second - world's second-biggest economy, if it's growing slowly, it's not good for the global economy. And, you know, inflation is at risk.

FADEL: NPR's John Ruwitch in Beijing. Thanks, John.

RUWITCH: Thank you. Transcript provided by NPR, Copyright NPR.

Leila Fadel is a host of Morning Edition, as well as NPR's morning news podcast Up First.
John Ruwitch is a correspondent with NPR's international desk. He covers Chinese affairs.