December 2, 2022

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The “contagion” is undermining consumption in China and raising unemployment rates

China posted its worst economic performance in two years, according to official figures released weeks ago, while the country grapples with the effects of the biggest pandemic outbreak since the outbreak of the coronavirus. Intensification of infection detection tests and health measures has significantly affected movement and consumption, while supply chains have been paralyzed by the shutdown of Shanghai since April.

The 25 million people who live in China’s economic capital are still under strict restrictions, while the city of Beijing is strengthening its measures to fight “Covid” after the number of infections increased.

The Bureau of National Statistics reported that retail sales, a key indicator of household spending, fell 11.1 percent year-on-year in April. This indicator fell for the second month in a row after -3.5% in March this year.

On the other hand, the unemployment rate, specifically monitored by the authorities, rose to 6.1% in April from 5.8% in March. This percentage is close to the highest unemployment rate of 6.2% recorded in February 2020, at the peak of the first wave of the pandemic.

But this index paints an incomplete picture of the situation. In China, unemployment is counted only for urban residents, while millions of migrant workers are excluded.

Officials announced measures to encourage companies to hire more young people, while a large number of graduates are expected to enter the labor market this year.

And the new China News Agency (Xinhua) reported that state-affiliated companies were also asked to contribute.

Beijing has set a target of 11 million jobs this year, down from 12.69 million in 2021. But this measure does not provide information on the number of jobs lost due to the health crisis.

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For its part, industrial production fell by 2.9% in April, compared to a 5% increase in March.

Analysts expected a sharper slowdown (+0.5%) as the Shanghai shutdown disrupted supply chains.

Shanghai is a major entry and exit point for cargo in China. ENZ Bank economist Raymond Young warned the closure had a “significant impact” on global trade.

In turn, Tommy Wu, China economist at Oxford Economics Group, said, “The prolonged Shanghai shutdown and its continuing impact across China, as well as logistical delays caused by sanitary measures, have hit local supply chains hard.”

While Beijing has long relied on domestic demand to fuel its economy, domestic consumption has been “heavily affected” by the health measures, Wu noted.

As for fixed capital investment, its growth slowed to 6.8% in the first four months of the year from 9.3% at the end of March, according to BNS Bank.

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