Born in the central Chinese province of Anhui, Ms. Wang has a real sense of what a bad economy means. She has been working as a domestic worker in Beijing for decades, but that is becoming increasingly difficult. The expats, for whom she prefers to work, leave in droves. Especially because the strict Chinese corona measures make it very difficult to travel in or out of the country, but also because China is no longer the country of unlimited growth opportunities.
In fact, the economy is in very bad shape. Growth in the second quarter was a paltry 0.4 percent compared to the same quarter in 2021 reported China’s National Bureau of Statistics. Foreign analysts even doubt whether there is already a contraction.
Ms. Wang’s husband normally works as a construction worker in the capital. But since the beginning of the year, there is no more construction project where they want it. Construction has largely come to a standstill due to an ever-expanding crisis in the real estate sector.
China’s 0.4 percent growth is the second worst result in 30 years. Only the first quarter of 2020 was even worse. That was at the beginning of the corona pandemic. Then there was a contraction of 6.8 percent. Large parts of the country came to a complete standstill.
Even now, the government’s anti-corona measures have a major impact on the economy. Chinese Prime Minister Li Keqiang warned in May even that “difficulties in some areas are to some extent greater than when the epidemic hit us hard in 2020.”
This is also apparent from the recent quarterly figures: youth unemployment is at 19.3 percent, and it is becoming increasingly difficult for recent graduates to find work. And then there’s the real estate crisis: in some parts of the country people refused to pay their mortgagesbecause the houses they had already bought and paid for were not delivered on time.
Lockdowns in 41 cities
Analysts from the Japanese investment bank Nomura released an estimate on the number of lockdowns in China on Monday. 41 Chinese cities are said to face full or partial lockdowns. That affects 264 million people in regions that account for 18.7 percent of economic activity in China. The number of lockdowns also increased: a week earlier, it affected 31 Chinese cities.
It is surprising that the economy is now doing so badly: China was the first to climb out of the valley in 2020, because the country took much stricter action against corona than other countries. But what worked then doesn’t work anymore. The new forms of corona are spreading faster, so completely eradicating the disease is virtually impossible. But that also seems less necessary, because people get sick less and usually recover quickly. The extremely strict measures increasingly resemble shooting a mosquito with a cannon.
Chinese President Xi Jinping sees it differently. In a speech during his visit to Wuhan at the end of June, he made it crystal clear again that he wants to stick to the complete elimination of all corona cases, regardless of the damage to the economy. “We would rather choose to temporarily affect economic development than harm the lives and health of the population.”
Xi, who it zero covidpolicy has become a personal spearhead, also stick to it because a change of course affects his status as an all-knowing and all-rounder.
But there is also a real danger if China gives up its zero covid policy. Then there is a good chance that many elderly people, who are also vulnerable to the milder variant and are estimated to have not been vaccinated for 80 percent until July 2023, will still die. Healthcare would also quickly become overloaded.
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Stability at risk
Prime Minister Li Keqiang, responsible for the economy, sees it differently. He sees that China’s stability could be seriously jeopardized if the economy goes bad. For him, economic growth is an indispensable foundation for a strong position of the Communist Party of China (CPC), and corona should not hinder that growth too much. Behind the scenes, there seems to be a battle going on between Li and Xi, with Li representing the primacy of economics over politics, and Xi representing the primacy of politics over economics.
Li does not openly oppose Xi, but he emphasizes in more and more forums how important it is to stimulate the economy first and not create unnecessary obstacles to production and transport of goods. He also supports, where possible, companies and industries such as the high-tech and real estate sectors, which are having a hard time under Xi. That sometimes leads to the reversal or softening of measures that Xi previously took.
For companies and investors at home and abroad, the behind-the-scenes battle between pragmatism and ideology is creating a much more unstable business and investment climate than they have long been accustomed to from China. It drives away foreign companies and investors.
This fall, the CPC summit will meet to identify new leaders for the next five years. Xi Jinping will then almost certainly be appointed for at least another five years. Li will disappear from the scene. But until then, he will fight hard to get as many people as possible in the new party leadership who can counteract Xi Jinping. As a result, the chances of a stabilization of the economic climate appear limited in the near future.
A version of this article also appeared in the newspaper of 20 July 2022