China: Covid undermines consumption and propels unemployment

Nearly 400 million Chinese have been subject to movement restrictions in recent weeks. Very strict confinements which have a devastating effect on the economy.

Correspondent in Asia,

The omicron effect hits the world’s second largest economy hard. China recorded its worst economic performance in two years in April, weighed down by the merciless confinements imposed on Shanghai and many metropolises, in the name of the implacable strategy “ Zero Covid by President Xi Jinping.

Retail sales plunged by 11.1% over one year according to the National Bureau of Statistics (BNS), beyond the most pessimistic predictions, accelerating the decline in consumption already glimpsed the previous month. Nearly 400 million Chinese in 45 cities have been under movement restrictions in recent weeks, according to Nomura, to contain the biggest surge of the virus since it broke out in Wuhan in early 2020. The 26 million Shanghainese are for the essential locked in their homes since the end of March, deprived of shopping, undermining consumption already at half mast since the end of 2021, and indirectly hitting small businesses. The shadow of confinement is also catching up with Beijing, the showcase capital of the regime, whose 22 million inhabitants are subject to growing restrictions.

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An overview of the difficulties

Unemployment jumped to 6.1%, approaching the February 2020 record of 6.2%, confirming the impact of anti-epidemic measures on the real economy, in a country with rudimentary social protection. These statistics only offer a glimpse of the difficulties that do not take into account the millions of migrant workers, many of whom have returned to their province of origin, for lack of jobs in the coastal metropolises, since the start of the pandemic. “ Behind these numbers is the loss of countless businesses and individuals, many of whom are struggling to make ends meet. judge in a post on Weibo, Hu Xijin, a columnist with a very nationalist GlobalTimes.

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The authorities are multiplying proactive declarations, emphasizing that these hardships are only temporary, and that activity will resume once the “ victoire in front of omicron. These difficulties will only be of short duration. The fundamentals of the economy and its upscaling are unchanged said Fu Linghui, spokesperson for the BNS.

A recovery that promises to be “soft”

Hub of world trade, Shanghai announces a gradual loosening of the sanitary vice, with the reopening of certain businesses this week, and expects normalization in June. But these predictions do not convince many inhabitants, who fear a life punctuated by covid tests in the coming months, under the sign of “ zero covid », Erected as dogma by the leadership. The hoped-for recovery is announcedsoftcompared to the rebound of 2020, when global growth is riddled with uncertainties, from inflation to the war in Ukraine. “ The worst may be over, but China will struggle to regain its pre-pandemic level Judge Julian Evans-Pritchard in a note from Capital Economics.

These poor figures jeopardize the objective of 5.5% GDP growth dictated by Beijing for 2022, in this year heavy with political stakes, culminating in a Party Congress in the fall, where Xi intends to run for a third undivided mandate. “ This target seems ambitious Judge Bert Hofman, former head of the World Bank in Beijing. The IMF has already lowered its forecast to 4.4%.

In this weighed down context, the authorities are multiplying signals of support for activity, in particular through a new infrastructure plan, but are struggling to convince investors as indicated by the decline in foreign capital, against a backdrop of geopolitical tensions between the West, Moscow and Beijing. The regime seems far from wanting or being able to pull out a gigantic recovery plan on the scale of 2008, which provided a boost to global growth. “ China doesn’t have much fiscal room left Judge Alicia Garcia Herrero, Chief Economist at Natixis, against the background of local government indebtedness and setbacks in the real estate sector. The promoter Sunac is in default of payment on its debts in dollars, confirming the difficulties of this key sector for Chinese growth, after those of the giant Evergrande. “ Trust cannot be maintained by slogans, but by real improvements warns Hu.

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