China’s ‘COVID-zero’ policy hit its economy in August Now a new Delta outbreak poses another threat

Updated: September 15th, 2021 01:40 PM IST

China’s ‘COVID-zero’ policy hit its economy in August. Now a new Delta outbreak poses another threat

China’s ‘COVID-zero’ policy hit its economy in August Now a new Delta outbreak poses another threat

Key drivers of Chinas economy decelerated in August after the government enforced strict measures last month to quash a COVID-19 outbreak that began in late July.

China’s retail sales, an important gauge of the country’s consumer spend, grew 2.5% in August, a steep drop from the 8.5% growth posted in July and the slowest pace of growth since last August, according to Wednesday numbers from China’s National Bureau of Statistics (NBS). The August figure was well below the 7% growth estimates from a Bloomberg survey of economists.

Chinas retail sales growth hit a monthly high of 34.2% in March. Since then, the metric has dropped every month as China has faced intermittent COVID-19 outbreaks, rising raw material costs, supply chain bottlenecks and disruptions caused by severe flooding in July.

Asian shares fell on Wednesday after the release of the Chinese data, which fueled investor fears of a global economic slowdown. Hong Kong’s Hang Seng Index shed 1%; while Japan’s Nikkei 225 dropped 0.52%.

The growth of China’s industrial output, which measures the country’s manufacturing, mining and utilities activity, also slowed last month to 5.3%, compared to 6.4% in July. Bloomberg’s same survey had pegged China’s industrial output growth rate at 5.8%.

Fixed-asset investment in China rose 8.9% in the first eight months of the year compared to the same period last year. In the first seven months of the year, fixed-asset investment grew 10.3%, pointing to an August slowdown.

China’s monetary authorities are “of two minds” right now—looking to curb debt and financial instability while entertaining concerns about the country’s economic slowdown, Ira Kalish, Deloitte’s chief global economist, wrote in a note on Tuesday. “As such, [the authorities] are eager to enable bank lending to grow at a reasonable pace, especially for those parts of the economy that are especially troubled.”

China is now dealing with another surge of Delta infections in its southeastern province of Fujian a few weeks after the country reined in the outbreak that began in July. The countrys commitment to a COVID-zero policy, or the insistence that even the smallest outbreak trigger mass testing and lockdowns, means any uptick in infections poses an economic threat.

Chinas National Health Commission reported 50 new domestic infections on Tuesday—up from 22 cases on Sunday—with all of them located in Fujian. Authorities from Putian and Xiamen—the two hardest-hit cities in Fujian—have now locked down high-risk parts of their cities, closing cinemas, bars and gyms and suspended in-person classes for kindergarten, primary and high schools.

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