China's growth slowed significantly in the second quarter. The economic figures, which the spokesman for the statistics office Fu Linghui presented in the Chinese capital Beijing in the morning, are worse than analysts had expected: According to the official figures, the gross domestic product of the second largest economy in the world increased by 0.4 percent in the second quarter compared to the same period last year increase This is the lowest growth since the start of the Covid 19 crisis in early 2020. In the first three months of this year, growth was 4.8 percent compared to the same period last year.
Zero Covid policy is having a major impact on economy
"The main trigger for the bad economic figures is China's Covid zero tolerance policy, which really condemns the country to running the gauntlet," says Jörg Wuttke. He is the President of the European Chamber of Commerce in China. "You never know where the next risk area is. People are tested left and right."
In the case of the smallest outbreaks, the authorities proceed with mass tests, travel restrictions and strict curfews. There was a tough lockdown in the economic metropolis of Shanghai in the spring. The more than 25 million inhabitants were not allowed to leave their homes in April and May. Numerous factories had to shut down or stop production altogether. Ships were backed up in front of Shanghai's port, supply chains were interrupted.
Government growth target at risk
Most observers believe that the government's growth target for this year can no longer be reached. China's state and party leadership had stipulated that the economy should grow by 5.5 percent for the year as a whole.
Michael Pettis is a professor at Peking University and an expert in public finance. It is not so much the slower growth that worries him as the origin of the growth. According to the economist, domestic consumption in the People's Republic has plummeted. Business people invest less, people buy less.
Growth is therefore increasingly being created by the state through massive investments in infrastructure. Loans would be taken out for this. "So what we're seeing is that the debt that's being taken on to meet growth targets is going up very quickly," says Pettis. "It's not sustainable. The Chinese government has said several times that it wants to end this practice, but so far it hasn't done it."
Further corona restrictions foreseeable
After the tough lockdown in the economic metropolis of Shanghai, the situation has eased somewhat. But many fear further restrictions and thus renewed problems for the economy. The new, even more contagious omicron variants of the corona virus are also spreading in the People's Republic. And the Chinese state and party leadership is sticking to its strict zero-Covid strategy.
China lacks an exit strategy, according to Chamber of Commerce representative Wuttke. "When will the country get out of this situation? You can only do that if you have vaccinated the population very well: three times, four times, booster shots – but also with relevant vaccines such as mRNA vaccines," says Wuttke. "But China stands in its own way. Imported technologies are not used."
The outlook for the global economy is therefore bleak. "The fact that China is on the knees economically right now is of course fatal," says Wuttke. Because in recent years China has been the growth machine. "We now have these huge problems with energy and recession in Europe, but also in America. China was always the economy that stabilized us and that may not be the case anymore."