Post Covid outbreak: China’s industrial reform falters

After the outbreak of covid
China’s industrial recovery falters

8/1/2022 7:34 am

The massive lockdown in China is clearly having an effect: the latest economic data points to a slowdown in industrial production. Other figures also predict a decline. Beijing’s growth forecast is no longer valid.

The pace of recovery in China’s economy was slow in July after the recent coronavirus outbreak and comprehensive measures to deal with Kovid-19. The Purchasing Managers’ Index (PMI) of Chinese business magazine “Caixin” fell to 50.4 points from 51.7 in the previous month, the newspaper reported.

However, the economic barometer was still above the crucial 50-point mark, indicating expansion in industrial activity. So Caixin economist Wang Zhe saw generally positive developments as restrictions were eased in the fight against the virus. Supply and demand are improving, but employment continues to decline.

Business magazine surveys give more importance to private and medium-sized companies. On the other hand, the official index from the Statistical Office, which focuses more on large and state-owned companies, even dropped to just 49 points from 50.2 a day earlier. This official leading indicator also pointed to a decline in industrial production.

China sticks to zero-Covid strategy

As the rest of the world tries to live with the coronavirus, China is adopting a zero-tolerance policy. But the economic recovery is suffering under strict measures, which are even less effective against the highly infectious Omicron variant. In the second quarter, the second-largest economy grew only 0.4 percent compared to the same period last year. It was the weakest reading since the pandemic began more than two years ago.

The government really wanted to achieve a growth of 5.5 percent this year, but that seems less and less realistic. Due to the COVID restrictions and the ongoing real estate crisis in China, experts expect only four per cent growth. The International Monetary Fund (IMF) recently predicted a growth of only 3.3 percent for China.