China’s Economy Continues to Struggle
China’s emergence as one of the last countries to come out of global lockdowns should in theory have boosted the global economy, however continual disappointing data is giving investors and policy makers many reasons to be cautious.
Chinese stocks had begun the year with high levels of growth, however since the January peaks, they have fallen over 20%. Below illustrates the comparison between the MSCI China A Index, which although has started to recover in July, it has fallen way short of expectations vs the S&P500 Index.
Ahead of the pandemic, analysts point to the various imbalances China was already grappling with, for example, the ongoing trade war with the US beginning in 2018. During the pandemic, China’s government reacted very differently to most other developed economies. The likes of the US and UK protected households and sent cash to individual households to maintain demand, however, China only did this for the supply side sectors in order for them to continue exports.
Therefore, post covid, the demand has been very low across all sectors, with the brunt of the downturn falling on the youth in China. The youth unemployment rate in China continues to rapidly increase and according to statistics, 20% of all 16-24year olds are unemployed, this has doubled from 2019 when it was 10%.
China’s economy did expand by 6.3% last quarter compared to a year ago, however the expectations were 7.3% considering that many Chinese cities were still in lockdown for most of 2022.
Furthermore, the Chinese economy by only 0.8% from this quarter compared to the quarter before, which is a massive decrease compared to the 2.2% they grew in the first three months of the year.