Xi Jinping’s Stubbornness in His Zero-COVID Strategy Is Pushing China to the Brink of Contraction.
Not ideal as the 20th National Congress of the Chinese Communist Party looms at the end of the year.
Xi Jinping and the Chinese Communist Party will not reach their growth targets in 2022. This is news that Xi Jinping could have done without as he will have the 20th National Congress of the Chinese Communist Party to manage at the end of the year. If there is no doubt that he will be confirmed for a third term as the head of the party and China, Xi Jinping would have preferred to make a show of praising the superiority of the Chinese model. He will not be able to do so.
The National Bureau of Statistics (NBS) announced that the gross domestic product of the world's second-largest economy narrowly escaped contraction, growing by only 0.4% year on year in the period from April to June 2022:
Even independent analysts, often skeptical of the honesty of the statistics distributed by the Beijing regime, were surprised by the weakness of the country's activity. They had rather anticipated a quarterly growth of 1.2%. “The foundations for a sustainable economic recovery are not stable,” said the NBS in its statement, pointing to the risks of stagflation in the global economy, the tightening of monetary policies in major economies, and the impact of the epidemic of COVID-19 on its territory.
China pays a high price for Xi Jinping's zero-COVID strategy
If the Chinese economy had escaped recession in 2020 and managed to generate a spectacular 8.1% GDP growth in 2021, at a time when component shortages were already staggering many nations, it has been thrown into disarray in the last few months by a strict application of the zero-COVID strategy imposed by Xi Jinping, who cannot get out of it without admitting his mistake.
Fearing an outbreak of infections, after having praised since 2020 to its population the superiority of its model over the sanitary flaws of Western democracies, the power led by Xi Jinping has put under a bell, for weeks, huge industrial basins of the country and put under strict quarantine hundreds of millions of people, to stop the circulation of the virus.
Industrial production was hit hard and stagnated in May 2022 (0.7%), at the peak of the quarantines, before rebounding timidly in June 2022 (3.9%). Retail sales fell by 4.6% year-on-year in the quarter. Imports, which are a measure of demand appetite in the country, also remain depressed. According to customs, they grew by only 1% year-on-year in June 2022. The housing market, to which public opinion is very sensitive, also continues to cool. And youth unemployment (16-24 years) remains abnormally high, at 19.3% according to the NBS.
What is the rebound capacity for China?
While they point to the rebound of several economic drivers in June 2022 (exports, private fixed investment, public spending on infrastructure, etc.), economists question the country's ability to generate a dynamic rebound in activity, similar to that seen in 2020 after the great Wuhan containment.
In the second half of 2022, Chinese companies are particularly concerned about the impact on their exports of the announced downturn in Western activity. On the domestic front, both producers and consumers remain under threat from Xi Jinping's zero-COVID strategy.
In a study published at the beginning of July 2022, the Japanese investment bank Nomura recalled that 31 Chinese cities were still subject to total or partial closures, affecting 247.5 million people in areas representing about 17.5% of all economic activity in the country. In recent hours, Shanghai residents feared that they would once again find themselves trapped in massive, authoritarian lockdowns, after the discovery of a BA.5 variant contamination in the megacity.
Pointing to all these uncertainties and the global surge in commodity prices that is fuelling the risk of inflation, experts no longer believe in the Chinese regime's ability to achieve its growth target of 5.5% for the year 2022. Even if they anticipate the deployment, in the coming months, of new gigantic stimulus plans, economic forecasters are betting on an increase in activity closer to 4% in 2022.
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