Post-Covid outbreaks: China’s industrial recovery falters

After Covid outbreaks
China’s industrial recovery falters

The massive lockdowns in China are apparently having an effect: the latest economic data point to a slowdown in industrial production. Other data even predicts a decline. Beijing’s growth forecast is no longer tenable.

The recovery of the Chinese economy after the recent outbreaks of the coronavirus and far-reaching measures to fight Covid-19 slowed in July. The purchasing managers’ index (PMI) of the Chinese business magazine “Caixin” fell to 50.4 from 51.7 points in the previous month, the paper reported.

However, the economic barometer was still above the important 50-point mark, which indicates an expansion in industrial activity. Caixin economist Wang Zhe therefore saw a generally positive development because the restrictions in the fight against the virus had been relaxed. Supply and demand are improving, but employment has continued to decline.

The surveys of the business magazine give more consideration to private and medium-sized companies. On the other hand, the official index of the statistical office, which focuses more on large and state-owned companies, even showed a decline from 50.2 to just 49 points the day before. This official leading indicator even pointed to a decline in industrial production.

China sticks to zero-Covid strategy

As the rest of the world tries to live with the coronavirus, China continues to pursue a zero-tolerance policy. But the economic recovery is suffering under the strict measures, which are also less effective against the highly contagious omicron variant. In the second quarter, the second largest economy grew by only 0.4 percent compared to the corresponding period of the previous year. That was the weakest reading since the pandemic began more than two years ago.

The government actually wanted to achieve growth of 5.5 percent this year, but this seems less and less realistic. Due to the Covid restrictions and the ongoing real estate crisis in China, experts only expect growth of around four percent. The International Monetary Fund (IMF) recently predicted only 3.3 percent growth for China.

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