Talking about recession in China, the Dragon that has accustomed us to high, often double-digit growth rates, is a bit like talking about snow in Hawaii. Yet the signs of a deep descent of the economy emerge like boulders on Labor Day, especially in the surreal atmosphere of the 7-8 lane streets of Shanghai. Traffic deserted for the lockdown.
China slows down economic growth: sharp slowdown in April
The economic indices confirmed for April a new, sharp slowdown in both industry and, above all, services, both below the levels of February 2020, the official date of the discovery of Covid-19. And even more disturbing signals emerge from the statistics: the cement production is down 40% from a year ago, the sales of construction equipment for construction they fell by 61%. They pay a high price too smartphone, 18% less sales.
China slows down: the drop in employment affects
But the statistics don't do justice to the unease that, here and there, emerges under the veneer of a society devoted to consensus. There are not a few companies which, as the owner of TaoTao Vehicles explains, have reduced their activity to just four days a week (with a cut in wages by a fifth). And according to estimates by the labor agency based on 31 cities, unemployment is now higher than the peak recorded after the quarantine imposed in Wuhan. In particular, it affects the decline in youth employment: the unemployed represent, according to official data, 16% of the population, a striking number because it refers to a generation still marked by the one-child policy.
And it could get worse after the summer, when more than ten million new graduates will arrive on the job market, an absolute record who, according to the Beijing Renmin University observatory, will however struggle to find suitable employment in a marked by pandemic and lockdown in which at least 200 million people have not returned to work in the metropolis after the February holidays. And Mr. Du's story, reported in the newspapers, deserves attention. Our Du, a real estate agent from Guangzhou under a pseudonym, confesses that he has been trying to change jobs since last November. In vain. He, who has worked for Evergrande and the other brick and mortar giants, explains that not even a cellar is sold: a little out of distrust, a lot because the middle class no longer has any money.
Will it be recession? Maybe not in China but in the West the risk is rising
Hence the risk of recession, undoubtedly exaggerated for a country which, like China, has many means to compensate for the decline in business with operations of various types and which in any case looks back on a quarter of +5,5%.
Nomura, who calculates that the lockdowns are affecting around 40% of the country's productive apparatus, reduces GDP growth to 3,9%. Others are more severe: according to Craig Botham of Pantheon Macroeconomics, "true" growth did not exceed 2,5 in the first quarter and is heading towards a meager +1,3%. But the danger is much more real for the rest of the planet which, for just under a quarter of its turnover, relies on the economy of the Dragon.
This is true for the United States, as demonstrated by the drop in GDP in the first quarter. Declining Chinese purchases forced Texas Instruments to cut investments for the second quarter in a row while Ford reported a decline in Chinese revenues of about 20%. This applies to Germany, of which Beijing is the first customer, but also to emerging economies, both those linked to copper and iron ore, and the oil-producing countries: despite the forthcoming European sanctions, the price of Brent is slipping back to around 100 dollars .
The hibernation of the Dragon and the ax on Covid infections
But how long can the lethargy of the Dragon last, induced in part by the decisions of Xi Jingping, determined to stop the contagion by any means before the Congress which in October will have to crown him for the third time party secretary? At least for now, there are no signs of change. Xi insists on the "stability" policy, which in his view is the most effective way to ensure Chinese leadership in the 1.700st century. And, as confirmed by the recent meeting with the big banks (not just the Chinese ones) he is concerned with countering any US sanctions against the Celestial Empire in the event of a conflict with Washington. In the meantime, the measures against the development of technology but also the reins in video games and the expansion of private education have caused a real sinking in the Stock Exchanges (XNUMX billion less).
Faced with these numbers, Beijing is likely to launch a more expansive policy. But, so far, little has been seen. The central bank has indeed cut the compulsory reserves, but has not touched the rates, worried by the fall of the yuan and by the fear of capital flight.
