Ian Williams Ian Williams

China’s economy is grinding to a halt

(Photo: Getty)

Economic growth in China is grinding to a halt. The days of soaring double-digit growth are over, and the malaise facing the country’s spluttering economy goes far deeper than the hit from Covid-19 lockdowns.

Gross domestic product in the April to June quarter grew by a paltry 0.4 per cent from a year earlier, according to figures released on Friday, well below the forecasts of analysts. On a quarter by quarter basis, the economy shrank, down 2.6 per cent compared with January to March. It was sobering reading for China’s communist leaders, who derive much of their legitimacy from their management of a fast-growing economy.

It is easy to blame the impact of the lockdowns. Restrictions were imposed on major cities across the country in March and April. Shanghai locked its residents in their homes for most of that time, and China’s commercial capital saw a year-on-year contraction of 13.7 per cent in the second quarter. Output in the capital Beijing shrank by 2.9 per cent. There is widespread fear in China that more lockdowns are on the way. Some cities, including Shanghai, have fresh Covid outbreaks, and the arrival of the BA.5 variant has rattled businesses and consumers.

One analyst in Shanghai described Chinese statistics as ‘one of the greatest works of contemporary Chinese fiction’

But look beyond lockdowns, and the economic outlook is still grim, as China confronts crises in its heavily indebted banking and property sectors.

The meltdown of four provincial lenders in Henan has been blamed on criminal gangs who took control of the banks, and has been presented as a little local trouble. But China’s opaque local banks in particular are heavily indebted, weighed down with bad loans. For years they have colluded with powerful local businesses and the local authorities.

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