China’s economy is collapsing

Data: FactSet;  Graphic: Baidi Wang/Axios
Data: FactSet; Graphic: Baidi Wang/Axios

The biggest engine of global economic growth – China – has stalled as its “zero COVID” policy comes up against a massive virus outbreak and large-scale lockdowns.

Why is this important: Many focus on inflation and the war in Ukraine, but the trajectory of the global economy and global financial markets this year largely depends on China’s economic and public health.

Driving the news: A slew of Chinese economic data released on Monday confirmed that the world’s second-largest economy has collapsed as the government battles the continent’s worst COVID outbreak yet.

  • Retail sales fell 2% in March. Compared to March 2021, retail sales fell 3.5%, the worst annual decline since 2020.
  • The country’s unemployment rate has risen to 5.8%, above the government’s target of 5.5% and the worst since May 2020, when the country first emerged from lockdowns after the initial outbreak virus in Wuhan.
  • Industrial production slowed sharply in March, as did investment in the domestic real estate sector, which has been a key driver of the country’s growth.

State of play: China is in the midst of its worst known coronavirus outbreak since the pandemic began in early 2020. The surge in cases, which has more than doubled in the past month, has prompted a series of lockdowns.

  • They include a hard lockdown in late March in Shanghai, the country’s wealthiest and largest urban area.
  • Other major cities such as the electronics manufacturing hub of Shenzhen and the port and petrochemical hub of Tianjin were also disrupted.
  • JPMorgan analysts currently estimate that “areas with full or partial shutdowns accounted for approximately 25%” of gross domestic product, according to a recent research note.

The big picture: China’s economy grew 4.8 percent year on year, according to first-quarter economic data released on Monday.

  • That’s pretty good, but most of the growth happened in January and February. It slowed in March as the impact of China’s strict lockdowns took hold.
  • Last week, Chinese Premier Li Keqiang called for a “sense of urgency” and said “downward economic pressure has increased further.”
  • “The pandemic must be the biggest source of risk to China’s growth this year,” Zhennan Li, chief China economist at AllianceBernstein, told The Wall Street Journal.

Yes, but: Some analysts view the GDP figures with suspicion, given the focus of Chinese government officials on meeting growth targets.

Our thought bubble: China’s woes will quickly become the world’s problem.

  • As it remains an export giant and a crucial cog in global supply chains, Chinese factory closures and logistical disruptions will amplify already problematic global price pressures.

What we are looking at: The International Monetary Fund’s update on the outlook for the global economy – due out Tuesday morning – could spell out just how much China’s economy will weigh on global growth.

Go further: China’s Extreme COVID Lockdowns Are Causing Widespread Suffering

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