China’s zero-COVID policy has put pressure on its economy, which expanded by only 0.4 percent YoY in 2Q22, lower than the analyst forecast1/ of 1.5 percent YoY, with growth in 1H22 reaching only 2.5 percent. The imposition of lockdowns in major cities such as Shanghai and Beijing in March-April 2022 due to the rising number of new COVID cases in China caused a slowdown of its economic activity – as evidenced by ebbing industrial production and logistics.
Looking ahead, China’s economy will likely improve when compared to the first half of the year, but still faces several risk factors. Both monetary and fiscal stimulus measures will be the key driver of China's economic growth over the remainder of 2022. Following the lockdowns due to the latest wave of COVID-19, on May 31, 2022, China released 33 stimulus measures to revive its pandemic-ravaged economy. The measures also cover fiscal policies such as extension of value-added tax refunds and deferral of social security payments for small businesses. However, China also continues to encounter other risks including its zero-COVID policy, which has had an impact on household confidence and business sentiment, and prolonged difficulties in the property sector. Although Chinese authorities have been involved in boosting the property sector through a reduction of five-year loan prime rate (LPR) as well as a relaxation of COVID-related restrictions, the current situation and diminished confidence will cause China’s property sector to remain a drag on its economic growth in the next phase.
In summary, China’s economic growth in 2022 tends to decline from the previous forecast. It is expected to grow in a range of 3.7-4.2 percent, supported by the Chinese government’s measures. Meanwhile, there are still significant challenges, i.e., the zero-COVID policy, which will undermine consumer confidence and business sector, and the persistent woes of the property sector.