Skip to content Skip to sidebar Skip to footer

China’s Fresh Covid-19 Outbreak Could Threaten 5.5% Target GDP Growth

  • High frequency GDP indicators suggest that China’s economy may have shrunk in the second quarter of this year despite what Beijing says. 
  • Investors mulling the purchase of Chinese assets on the cheap should also consider the veracity of official Chinese economic reports, and the authenticity of any purported rebound. 

China is facing a fresh spike of Covid-19 cases with growing concern over whether a series of lockdowns would be enforced again to combat the outbreak.

Shanghai saw a fresh influx of cases, prompting the implementation of mass testing in several districts, while eleven cities in China are restricting movement, an increase from five cities from a week earlier.

Hong Kong’s Hang Seng Index dipped 1.37%, with key component stocks like HSBC and CNOOC (China National Offshore Oil Corporation) declining by 3.93% and 5.58% respectively and dragging down the index.

China markets were hammered with the Shanghai Composite falling 1.34%, erasing a portion of the gains from the previous weeks.

With China ramping up Covid-19 testing once again, fears of fresh lockdowns are putting a damper on consumer sentiment and domestic business confidence, with the country’s goal of achieving 5.5% GDP growth this year looking increasingly elusive.

High-frequency economic indicators out of China for June suggest that the Chinese economy contracted over the second quarter, due to the lingering effects of lockdowns in dozens of cities.

China has only experienced a quarterly drop in GDP once, since it instituted economic reforms to open up its market in 1979, but Chinese Communist Party apparatchiks may dread telling the emperor that he wears no clothes.

Debate over the accuracy of China’s official economic data will likely persist for the rest of this year as Chinese President Xi Jinping puts pressure on his lieutenants to achieve the impossible – 5.5% GDP growth while sticking with touch zero-Covid policies that require lockdowns and other restrictions the minute virus cases are detected.

There is growing evidence of an ongoing slump in the Chinese economy, as evidenced by a slew of alternative indicators.

Travel data shows that passenger trips on Chinese roads were mostly below last year’s levels into July, according to transport figures analyzed by TS Lombard, while the number of domestic flights in the quarter was down 62% from the same period last year according to data provider Variflight.

The movement of trucks carrying goods between cities, which bears a strong correlation with GDP, also shows weak activity.

Chinese farmers are said to be struggling to obtain fertilizers and other key equipment for the planting season, which could affect the harvest in several months.

Data from G7 Connect, a digital logistics firm, notes that as of the last week of June, 20% less trucks plied China’s roads from a year earlier.

China’s real estate market, which accounts for a fifth of GDP and 70% of the economy through its ancillary materials and services demand, remained in a deep slump in the second quarter, according to data from China Real Estate Information Corp.

While China’s real estate market may have bottomed out in May, there are no signs of actual growth.

Data from the China Association of Automobile Manufacturers suggests that car purchases, which make up about 10% of monthly retail sales, fell by over 10% in the past quarter, which makes sense since many Chinese cities were under lockdown from zero-Covid policies.

Yet despite the glaring economic reality, Beijing is unlikely to report a contraction in the economy.

In May, Chinese Premier Li Keqiang said that officials should work to ensure the economy expands over the quarter, which is doublespeak for lower-ranking mandarins to “tell the emperor what he wants to hear.”

Against this backdrop, investors and analysts covering Chinese assets may struggle to gather an accurate picture of the economic situation on the ground, the durability of a rebound in asset prices and the economic prospects of a country that is increasingly deluding itself. 

Leave a comment

About SuperCryptoNews

SuperCryptoNews is a global leading blockchain & crypto news provider, covering daily news focused on trading and investment developments in bitcoin and crypto. We bring you expansive crypto news coverage around the world. We offer many thought leadership opinions from blockchain experts and leaders of the industry.

Subscribe to SCN

© Copyright of Novum Global Consultancy Pte Ltd {2020-2023}. All rights reserved.

Contact Us   |   T&Cs   |   Privacy Policy   |   About Us

About SuperCryptoNews

SuperCryptoNews is a global leading blockchain and crypto news provider, covering daily news on the latest tech and trading developments in blockchain, crypto, Web3, fintech and technology.

Follow Us On

© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

Contact Us   |   T&Cs   |   Privacy Policy   |   About Us