China's economy slows down as worries about the Covid recovery grow

Finding a job in China has been more difficult than ever for Anna Li this year, even more so than it was during the pandemic.

"I’ve been applying for jobs for half a year. I’m really exhausted but I’ve not received an offer yet," the 25-year-old graduate from the prosperous eastern Shandong region of the country said. She continued by saying thateven if she did get a job, the wages for office work are frequently unlivable.

Five years ago, China's economy was expanding quickly enough for many graduates to find great jobs. Their futures are now less clear since six months after authorities started to draw down President Xi Jinping's strict zero-Covid rule, the economy of the nation is still struggling to recover.

Recent data revealed that industrial production and profitability, real estate sales, and credit growth have all fallen short of experts' expectations in April and early May, eroding confidence in the world's second-largest economy's growth prospects.

Markets have already been affected by the slowing momentum, with stocks plunging, the price of commodities like copper and iron ore falling, and the renminbi weakening to more than seven to the dollar. A bleak economic outlook has also caused a decline in consumer expenditure, which initially increased after the Covid-19 limits were relaxed at the beginning of the year.

The senior China economist of Goldman Sachs, Hui Shan, stated that "confidence is a big problem. For consumers, there are concerns about the future — you don’t really want to spend. Private investment is also very weak. You talk to entrepreneurs, there is still a reluctance to engage."

After three years of severe restrictions that hampered activity, China's leaders recently took a conciliationist stance in an effort to boost business confidence and restart the nation's economic engine. The tremors coincide with this transition.

They also released a conservative growth estimate in response to last year's disastrous performance, when the economy grew by just 3%, the lowest rate in decades, as a result of occasional lockdowns, a collapse in the housing market, and travel restrictions. The first three months of this year were stronger than expected, with the gross domestic product rising 4.5% thanks to strong retail and export sales.

However, the outlook has dimmed recently, with the real estate market in particular displaying signs of brittleness. Sales decreased to 63% of their 2019 levels in April from 95% in March, according to research firm Gavekal.

Due to a drop in demand for products like cement, glass, and other goods, industrial production dipped in April compared to seasonally adjusted 2019 statistics as a result of the real estate troubles. One of the primary expected drivers of the recovery, household consumption, also slowed down.

The slowing growth has increased youth unemployment, which last month reached a record high of 20.4%.

While youth unemployment has come to symbolize China's economic problems, economists said the reality on the larger labor market is more complex.

According to Citi, the official unemployment rate really dropped to 5.2% in April, with employment among migrant workers—who work in China's factories—up 3.1% from pre-Covid levels in the first quarter.

There is still hope that consumption and real estate will stabilize in the upcoming months, according to some economists, as the overall job market continues to improve.

"The consumption-recovery engine is intact: a tightening labour market will eventually push up incomes and lead to more household consumption in the coming quarters," claimed Gavekal.

Chinese officials are debating whether the recent slowdown is just a "hiccup" or if additional intervention from the government is necessary, remarked Morgan Stanley's chief China economist, Robin Xing.

Before reaching a decision, regulators, according to Xing, would watch factory activities over the ensuing two months. The implementation of targeted automobile subsidies, the easing of restrictions on real estate purchases, and the funding of infrastructure projects are examples of stimulative policies.

Given the low base from the previous year, when officials shut down Shanghai, China's largest city, and other metropolises for extended periods of time, experts predict that Beijing's full-year growth target of 5% for 2023 should still be reachable.

According to Xing at Morgan Stanley, the government will not permit growth to fall below that level since it would increase long-term unemployment and run the danger of triggering social issues. The hardest restriction, he claimed, was social stability.

Whatever the policy course, this year appears to be dismal for China's youth. Changes in the government's goals, such as a move away from banking and online platforms and towards manufacturing engineering and electronic gear, have already transformed the labor market and left many graduates unprepared, according to observers.

Christina Liu, a Hunan student in her 20s who was having trouble finding employment after earning her master's, made the decision to pursue  a PhD. Although she is a student in Hong Kong, she claimed that many of her acquaintances were having trouble finding work or switching careers.

Some of them wanted to leave, but Liu claimed that they were afraid to do so without having secured another position first.

By fLEXI tEAM