China’s second-quarter GDP appears to be faltering after the Covid outbreak

Due to the massive impact of the lockdown in Shanghai, a city of 25 million people, the comparison between spring and last spring provides a “misleading picture of China’s economic performance,” said Diana Chuileva, chief economist at Enodo Economics in London.

Instead, the analysts said, a more accurate measure of the economy emerges by comparing the second quarter of 2023 to the previous three months, after the “zero Covid” policy was scrapped.

By that measure, production was only 0.8 percent higher in the second quarter than the first. When projected for the full year, that’s a growth rate of just over 3 percent annually, down from about 9 percent in the first quarter.

The Chinese economy gives off many warning signs.

Exports fell, particularly in June. Weak spending is pushing China closer to a dangerous trend known as deflation: consumer prices are flat, and wholesale prices paid by businesses are already falling.

Home prices were falling in small towns, and that decline spilled over into major cities in June. It was another blow to the development of the country’s real estate and construction industries, which make up at least a quarter of the economy and have already been shaken by dozens of defaults on bonds issued outside China.

Data released by the National Bureau of Statistics on Saturday showed that the housing price index in 70 cities fell at an annual rate of 2.2 percent in June, after eroding at an annual rate of just 0.2 percent in May.

Investment has faltered, with foreign companies in particular showing little desire to pour more money into China. Local governments are short of cash. Baoding, a city of 12 million people in north-central China, had to suspend most bus services last week.

“It’s not a strong recovery; the economy is very weak,” said Wang Dan, chief economist at Hang Seng Bank of China.

Signs of more economic trouble remain. The National Bureau of Statistics said on Monday that industrial production — a measure of output from China’s factories, mines and power plants — increased 4.4 percent last month, while retail sales rose 3.1 percent from a year earlier. The General Administration of Customs announced last week that exports fell 12.4 percent in June compared to the same month last year, which was unusually strong.

Last year, after Shanghai closed, retailers in the US and Europe required up to three months of inventory from Chinese factories to allow for delivery delays, said Richard Fattal, co-founder of Zencargo, a logistics company in London. Companies are now asking for half that amount, which leads to a temporary drop in China’s exports.

Mr. Fattal said some companies are also moving supply chains out of China, which will have a long-term impact on exports.

The workers are struggling, too. The incomes of millions of people in China have been severely reduced during the epidemic, and they remain poor. The unemployment rate for people ages 16 to 24, which was particularly sharp last year, reached 21.3% in June, according to data released Monday, the highest level since China began releasing the census in 2018.

The economy has performed poorly enough in recent weeks that Lu Jiu, the former finance minister, suggested last week that the Chinese government needs to increase spending this year by between $208 billion and $277 billion to stimulate the economy.

Some hints of power can still be found. The unemployment rate for those between the ages of 25 and 59 remained low at 4.1 percent. Cui Dongxu, general secretary of the China Passenger Car Association, said auto sales increased 8.7 percent in June from the previous month, the sixth month of higher sales.

China has a huge impact on global growth. In recent years, the government has pursued a self-reliance drive to make more goods at home. However, China remains the world’s largest importer of food, oil and many basic commodities.

But there are many signs that Chinese families are not so eager to spend — including falling prices for staples like pork, and the severe erosion of the housing market, long the primary way to build wealth.

Many economists say that China’s future demand for goods and services will depend on Beijing’s policy decisions. Some, like Mr Lu, have called for the central government to launch a spending program to create jobs and stimulate consumer activity. But the massive accumulation of debt, especially at the local government level, made this difficult. Officials have instead relied on monetary policy measures such as interest rate cuts, which were already cut last month and could be cut further.

“If there is no political response, including monetary response, I don’t expect much recovery,” Ms. Wang said.

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