Apr 19, 2022 - World

China's economy is sputtering

Data: FactSet; Chart: Baidi Wang/Axios
Data: FactSet; Chart: Baidi Wang/Axios

The largest single driver of global economic growth — China — is stalling as its "zero COVID" policy collides with a massive virus outbreak and large-scale lockdowns.

Why it matters: Many are focusing on inflation and the war in Ukraine, but the path of the world economy and global financial markets this year largely hinges on China's economic and public health.

Driving the news: A slew of Chinese economic data out Monday confirmed that the world's second-largest economy has sputtered as the government combats the worst outbreak of COVID so far on the mainland.

  • Retail sales tumbled 2% during March. Compared to March 2021, retail sales were down 3.5%, the worst annual drop since 2020.
  • The country's unemployment rate rose to 5.8%, above the government's target of 5.5% and the worst since May 2020, when the country was first emerging from lockdowns after the initial virus outbreak in Wuhan.
  • Industrial production slowed sharply in March, as did investment in the domestic real estate sector, which has been a key driver of the country's growth.

State of play: China is in the middle of its worst known outbreak of the coronavirus since the pandemic began in early 2020. The surge in cases, which more than doubled over the last month, has prompted a range of lockdowns.

  • They include a hard lockdown in late March in Shanghai, the country's richest and largest urban area.
  • Other major cities such as electronics manufacturing center Shenzhen, and port and petrochemical hub Tianjin have also been disrupted.
  • J.P.Morgan analysts currently estimate that "areas with full or partial lockdowns accounted for about 25%" of gross domestic product, according to a recent research note.

The big picture: China's economy grew 4.8% year-on-year, according to first-quarter economic data released Monday.

  • That's pretty good, but most of the growth occurred in January and February. It slowed in March, as the impact of China's strict lockdowns was felt.
  • Last week, Chinese Premier Li Keqiang called for a "sense of urgency" and said that "downward economic pressure has further mounted."
  • “The pandemic has to be the biggest source of risk for China’s growth this year,” Zhennan Li, chief China economist at AllianceBernstein, told the Wall Street Journal.

Yes, but: Some analysts view the GDP numbers with suspicion, given how focused Chinese government officials are on meeting growth targets.

Our thought bubble: China's woes will quickly become the world's problem.

  • As it remains an export giant and a crucial cog in global supply chains, Chinese factory shutdowns and logistical disruptions will amplify the already-problematic global price pressures.

What we're watching: The International Monetary Fund's update on the outlook for the global economy — due to be released Tuesday morning — could spell out how much China's economy will drag on the global growth.

Go deeper: China’s extreme COVID lockdowns cause widespread suffering

Go deeper