China’s Economy Hits a Slump as Covid Policy Takes a Toll

In May, Li Keqiang, China’s premier, called an emergency meeting and sounded the alarm about the need to gin up economic growth to more than 100,000 officials from businesses and local governments. The stark warning cast doubt about China’s ability to reach its earlier growth target of 5.5 percent for the year.

China’s slowing growth complicates an already fragile global economy. Surging inflation has heightened the risk of recession in the United States, while Russia’s invasion of Ukraine has pushed up energy prices and disrupted supply chains across Europe. In previous moments of economic crises, China alleviated financial pressures with access to cheap manufacturing and a largely untapped market of consumers eager to spend.

But China is no longer growing by leaps and bounds. The Covid restrictions and policies carried out in recent years — such as cracking down on speculation in real estate and curbing the power of China’s tech giants — have combined to exacerbate the slowdown. So far this year, Starbucks, Nike and Hilton have all warned that weak spending in China had brought down sales.

While much of the world has learned to live with the coronavirus, China has adopted a zero-Covid policy to do whatever necessary to prevent infection. Under that policy, residents of an entire apartment building can be confined to their homes for weeks if a single tenant is infected. A few positive cases could cause an entire section of a city to lock down.

Even as the toll from those policies has become apparent, Mr. Xi has not flinched. He has said he is willing to endure some temporary economic pain in order to keep Chinese citizens free from Covid.

The most recent economic malaise hit in April and May, when Shanghai, China’s largest city, went into lockdown for nearly two months and the impact rippled through the economy. Office buildings were closed, and workers were ordered to remain at home. Throughout China, hundreds of millions of consumers were shut in — leaving stores, restaurants and service providers to carry on without customers.

Article source: https://www.nytimes.com/2022/07/14/business/economy/china-economy-slows.html