The Chinese economy is going backwards

According to a survey released by IHS Markit on Thursday, the Caixin Purchasing Managers’ Index, a closely monitored indicator of the state of the economy, fell to 36.2 in April from 42 in March. A value below 50 indicates contraction, while anything above this indicates expansion.

The service sector accounts for more than half of the country’s GDP and more than 40% of employment. And with survey data showing that China’s manufacturing sector also contracted last month, the world’s second-largest economy pulled back in April.

While conditions may improve this month as Covid infection rates decline and officials try to limit damage to the economy, large parts of Beijing have just been subjected to tighter restrictions, with some economists now predicting China’s GDP will decline in the second quarter. .

Local authorities announced Wednesday that the nation’s capital has effectively shut down its largest district, Chaoyang, suspending traffic within it and prompting 3.5 million residents to work from home as part of their latest efforts to curb Covid-19 cases.
Decrease in activity in the services sector in April by almost 6 points was the second after the collapse in February 2020, as China’s economy nearly ground to a halt in an attempt to contain the initial coronavirus outbreak that began with Wuhan. In the same month, Caixin Services PMI fell to 26.5 from 51.8 in January.

Companies in the world’s second-largest economy were already struggling with rising energy and raw material prices when the lockdown further disrupted their operations.

It has also become more difficult for firms to offer higher prices to consumers due to the impact of Covid restrictions on consumer demand. This has resulted in even lower employment.

“Some companies hit by cutbacks have laid off workers to cut costs,” said Wang Zhe, senior economist at Caixin Insight Group. The survey showed that employment in the service sector has been below 50 for four consecutive months.

The data comes just hours after China reported a sharp drop in tourist spending due to the national Labor Day holiday.

According to a statement from the Ministry of Culture and Tourism, tourism spending for the five-day holiday was only 64.7 billion yuan ($9.8 billion), down 43% from the same period last year.

During the holiday, people made 160 million domestic tourist trips, down 30% from a year earlier.

The data again shows how China’s anti-coronavirus policies have taken a heavy toll on its economy.

On Saturday, government PMI polls showed that both factory and non-manufacturing activity in April fell to its lowest level since February 2020.

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“Recent mobility trends suggest that China’s growth rate deteriorated significantly in April,” Fitch Ratings analysts wrote on Tuesday. They expect GDP to contract in the second quarter before manufacturing recovers in the second half.

Analysts at Nomura also warned last month of a growing risk of a “recession” in the second quarter as lockdowns, shrinking real estate and slowing exports hit the economy hard.

As the highly contagious variant of Omicron spreads rapidly in China, the country is battling its worst outbreak in more than two years. At least 27 Chinese cities are currently under full or partial lockdown, which could affect up to 185 million people across the country, according to CNN’s latest count.

This includes Shanghai, the country’s leading financial center, as well as a major manufacturing and transportation hub. The city has been under quarantine since March 28. Although authorities began lifting some restrictions last month, more than 8 million residents are still barred from leaving their housing estates.

The Chinese government is still sticking to its strict zero Covid policy more than two years after the initial outbreak – at a time when the rest of the world is learning to live with Covid. The policy calls for mandatory mass testing and strict restrictions to contain the spread of the virus.

But the economic costs are rising.

Many economists have lowered their GDP growth targets for China for this year, citing the risks associated with the Covid zero policy. Last month, the International Monetary Fund lowered China’s growth forecast to 4.4%, well below the government’s official target of about 5.5%.
In recent days, Chinese leaders have repeatedly tried to reassure the public about the need to fix the economy. President Xi Jinping last week called for more spending on infrastructure to spur growth. And the Politburo of the Communist Party on Friday promised “concrete measures” to support the internet economy.

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