The Office for National Statistics said on Friday that the economy grew 0.4 percent from a year ago in the second quarter, the slowest growth since the first three months of 2020. That’s when the country effectively shut down to deal with its early stages due to the pandemic, its economy is shrinking for the first time in 28 years. The 2020 recession was short-lived, with the Chinese economy recovering almost immediately. But the current outlook is not so promising. Unemployment is nearing record highs. The housing market is still a mess, and small businesses are bearing the brunt of the weakness in consumer spending. The slowing economy poses a political problem for China, which is trying to project unwavering strength and stability in a year scheduled to hold its Communist Party congress. Xi Jinping, the country’s leader, is expected to continue for another five-year term. A booming economy and the promise of growing wealth underpinned China’s rise, part of the deal Chinese citizens accept in exchange for living under authoritarian rule. But lockdowns, a key element of Beijing’s zero-Covid policy, have increased the risk of instability – socially and economically. “China is the shoe that never dropped in the global economy,” said Kenneth Rogoff, a Harvard University economics professor and former chief economist of the International Monetary Fund. “China cannot be the global driver of growth right now, and long-term fundamentals point to much slower growth over the next decade.” In May, Li Keqiang, China’s premier, called an emergency meeting and sounded the alarm about the need to boost economic development to more than 100,000 officials from businesses and local governments. The stark warning cast doubt on China’s ability to meet its previous growth target of 5.5 percent for the year. Measures to crack down on excessive borrowing by property developers have combined with Covid restrictions to exacerbate a slowdown that could have global repercussions. Last month, Nike said revenue and profit fell in its most recent fiscal quarter, with sales in China down 19 percent. The most recent economic turmoil hit in April and May, when Shanghai, China’s largest city, went into lockdown for nearly two months and the impact rippled through the economy. Office buildings were closed and workers were ordered to stay at home. Across China, hundreds of millions of consumers shut down – leaving shops, restaurants and service providers to continue without customers. Zheng Jingrong, owner of a shop in Beijing that sells imported handmade clothes, said she had typically sold 150 to 200 pieces of clothing in a month before the pandemic. In May, she sold 20. Her regulars don’t come anymore, she said, and people are generally reluctant to go out. Each year of the pandemic has been “worse than the year before,” Ms Zheng said. And the problem isn’t limited to her clothing store. Ms. Zheng said more than 300 shops operated in the same neighborhood as her store in Gulou, a maze of streets and alleyways once filled with food stalls, cafes and bars. He estimated that 20 percent of those businesses were closing or had closed. “Because China began to flourish and develop from the 1980s, its economy has always been on the rise,” said Ms Zheng, who has run the shop for 15 years. “Now it’s obviously going down.” Retail sales, a measure of how much consumers are spending, fell 4.6 percent from last year in April to June, according to the government. And even as the economy improved in June, the threat of further mass lockdowns could derail this nascent recovery. This week, the cities of Xi’an, Lanzhou and Haikou imposed some restrictions, placing restrictions on several million residents by closing non-essential businesses and mandating mass testing. Japanese securities firm Nomura estimated that, as of Monday, 247 million people in 31 cities were under some form of lockdown in China, covering about a fifth of the national population and accounting for about $4.3 trillion in annual gross domestic product. The number of cities affected almost tripled from a week earlier. Beijing has urged local authorities to step up measures to ensure labor stability during the lockdown. And yet, with so many small and medium-sized businesses suffering financially, the government has struggled to manage rising unemployment. As of June, unemployment was 5.5 percent — an improvement from April and May, but close to the highest level since China began reporting the data in 2018. For job seekers ages 16 to 24 , which include new college graduates, the unemployment rate was three times higher at 19.3%. James Fu quit his job last month as a landscape designer for a property developer – a grueling job he’s grown to hate. But now he faces the stress of finding work in a tough job market, especially in the real estate market. Mr. Fu, 28, said there were fewer jobs at real estate companies because companies were either struggling financially or using the recession to justify cutting staff and costs. And because the job pool has shrunk, he said, the demands to secure one have increased. He said a job he could have gotten in the past with two to three years of experience now required five to 10 years, at the same salary. “I’ve been stuck recently,” said Mr. Fu, who lives in Chengdu, Sichuan province. “This year can be particularly difficult. I think it’s been more difficult since the pandemic started.” Along with high unemployment, signs are emerging that weakness in the real estate market could also be a major problem for China’s government this year. Measures to curb property speculation have sent the industry into a debt spiral, reducing new home prices for the first time in years and shaking consumer confidence, many of whom had plowed household savings into real estate. Resentment among people who bought homes before they were built is growing. According to state media, more home buyers are refusing to pay mortgages, upset over construction delays as well as declines in house prices. Buyers of 35 projects in 22 cities decided to stop making mortgage payments, Citigroup analyst Griffin Chan wrote in a note to clients on Wednesday. That has put real estate companies in a bind: If they walk away with clients’ advances for defaulting on their mortgages, “social instability” could result, Mr. Chan said. Claire Fu contributed to the research.
