China’s economic growth loses steam as pandemic fears persist

Momentum slowed as more expensive raw materials weighed on factories

After a year of leading the global economy out of the pandemic slump, China’s growth is now starting to level off, as the world tries to assess whether the country’s recovery will continue or peter out.

The signs are mixed, with consumers and companies showing signs of both weakness and strength. The rising cost of raw materials is eating into the profits of factories and retailers, while exports remain strong. People are shopping more, but small businesses are suffering. Inflation is starting to make a comeback, muddying the data. And the ongoing uncertainty of the pandemic weighs over it all. “It is unclear whether such a strong rebound in China and around the world can sustain itself in 2022,” said Zhu Ning, deputy dean of the Shanghai Advanced Institute of Finance.

China reported on Thursday that its economy grew 7.9 per cent from April through June, compared to the same period last year, falling short of estimates. Although that pace is still stronger than in many other countries, it is markedly slower than the 18.3 per cent leap the economy made in the first three months of the year as it bounced back from lockdowns a year earlier.

China’s ultimate trajectory will be closely watched by the world. If China continues to chug along, it could portend a sustained recovery for the United States and other nations now bouncing back from their pandemic lows. If its economy further slows, it could drag down the rest of the global economy. Many countries now depend on Chinese factories and consumers.

Economists cautioned that China’s actual economy is not quite as strong as the numbers released on Thursday might suggest. Inflation means that some of the statistics, like retail sales in June, overstate what is actually happening. Rising prices also suggest that the Chinese economy’s performance in the spring might not be sustainable.

The Chinese government has sent a series of recent signals that economic growth might be in trouble.

Premier Li Keqiang has held three high-profile meetings just in the past week on the economy’s health and issued statements after each of them, ordering a blizzard of measures to sustain growth.

The most important of these measures was a policy shift by the central bank. China’s central bank moved to help small businesses get loans; starting on Thursday, commercial banks can keep somewhat smaller cash reserves. In theory, that frees the banks to lend more, which could stimulate business investments and consumer spending. Looming over the country’s economy is an accumulated mountain of debt. China Beige Book, a quarterly survey of businesses across China, has found in recent weeks that many borrowers, especially retailers, have become cautious about taking out loans. Companies fear that they might not be able to repay additional loans.