Since July China’s economy has slowed down, industrial and commercial activity are at their worst, due to the zero COVID policy implemented by the Chinese Communist Party (CCP). It has restricted large commercial cities and the real estate crisis seems to push every rescue attempt down.
The Asian country’s industrial production fell in July to 3.8%, down from 3.9% in June, according to the National Bureau of Statistics (NBS).
Business activity is below the 5% growth forecast and the 3.1 % growth observed in June. Chinese stocks fell and the yuan weakened.
“The July data suggest that the post-lockdown recovery lost steam as the one-off boost from reopening fizzled out and mortgage boycotts triggered a renewed deterioration in the property sector,” Julian Evans-Pritchard, economist.
New zero COVID policy restrictions further hamper economy
On August 17, the CCP closed several Chinese cities, with the zero COVID policy, in the face of an alleged increase in cases, which further increased the recession.
The closures of companies and industries have even halted normal income and consumption.
Yiwu district’s export and manufacturing, has also been hurt. With 1.9 million people in LOCKDOWN, the export center said it would conduct three days of “silent management.”
In the western Chinese region of Xinjiang, after weeks of a lockdown, three cities in the Aksu area allowed employees to leave only their homes to go to work, but restricted any other normal activity.
While several districts in Urumqi, the capital of Xinjiang, will be closed for five days.
Tourist spots in Hainan and Tibet remain closed and without any commercial movement.
Twenty-two cities are currently fully or partially locked down, representing 8.8% of GDP, according to Nomura, a think tank on China’s economy.
And the real estate crisis added to the problem, severely damaging consumer and business confidence.
Real estate investment fell
The mortgage boycott led to increased investor distrust and the real estate sector came to a standstill in July, falling 12.3%, while new property sales declined 28.9%.
As a result, GDP slowed to 4% from 4.4% previously, a weaker-than-expected forecast. This could improve depending on exports, according to Nie Wen, an economist at Shanghai-based Hwabao Trust.
People’s Central Bank of China lowers lending rates
In a desperate attempt to revive the economy, the People’s Bank of China lowered interest rates on key credit lines for the second time this year.
The objective is to stimulate credit through loans with a low interest rate.
According to official figures, in July, the purchase of yuan loans declined because consumers were afraid of taking on debt amid so much economic uncertainty.
This CCP strategy, for some experts, is risky because lowering interest rates could cause capital to flee to other markets.
“Liquidity is piling up in the interbank market and there’s even a risk of money being directed out of the real economy and into markets,” said Ming Ming, chief economist at Citic Securities.
He added: “Monetary policy needs to better monitor the changes in market leverage and push for the money to flow into the real economy.”
The CCP has tried to persuade banks to increase lending, especially to specific sectors such as small businesses.
However, the banks are reluctant to lend after customers refused to make mortgage payments fearing the economy will go into recession.
For this reason, the CCP had to allocate a total of 1.1 trillion yuan ($161 billion) to banks to revive the economy and finance infrastructure projects.
The latest data shows large drops in mortgage demand and businesses and individuals are reluctant to expand business and household investment.
Chinese Premier Li Keqiang, amid a gloomy outlook for the remainder of the year, urged local governments to boost employment and investment.
“At present, we are at the most difficult point of economic stabilization,” said Li at the meeting, in Shenzhen, the country’s technology hub.
He added, “We must cement the economic recovery with a sense of urgency as time waits for no man.”
He also referred to the 6 provinces, Guangdong, Jiangsu, Shandong, Zhejiang, Henan, and Sichuan, which account for 45% of China’s GDP and 40% of the country’s employment.
The six provinces are the “pillars” of China’s economic growth and should “boldly take the lead and play a key role in stabilizing the economy,” Li told officials.
Li’s speech came days after officials in Sichuan, a major center of lithium mining and electronics manufacturing, ordered a weeklong shutdown of factories across the province to maintain power supplies.
Worst heat wave paralyzed industrial activity
China is suffering the worst heat wave in six decades, creating an energy crisis and forcing industries, factories, and shopping malls to close.
For example, Sichuan province has been suffering from extreme heat for the past two months, with temperatures of more than 40°C (104°F), followed by a severe drought, damaging agriculture and livestock, and forcing the closure of factories, industries, and large commercial centers to ensure electricity to households.
The power shortages have also spread to several companies in the large Chongqing region bordering Sichuan, which had to suspend production.
China’s outlook is not encouraging. The recovery of the Asian giant is becoming increasingly difficult because no one is willing to invest in a country that is visibly sinking in the erratic decisions of the CCP, without considering the consequences.