BEIJING (AP) – China’s economy contracted in the three months ended in June compared with the previous quarter after Shanghai and other cities were shut down to fight the coronavirus outbreak, but the government says a “steady recovery” is underway as businesses reopen.

The world’s second-largest economy shrank by 2.6%, compared with the January-March period’s already weak quarter of 1.4%, data showed on Friday. Compared to the previous year, which may mask recent fluctuations, growth fell to a weak 0.4% from the previous quarter’s 4.8%.

Anti-virus controls have shut down Shanghai, the world’s busiest port, and other industrial hubs since late March, raising concerns that global trade and production could be disrupted. Millions of families were confined to their homes, which dampened consumer spending.

Factories and offices were allowed to reopen in May, but economists say it could be weeks or months before jobs return. Economists and businesses say China’s trading partners will see disruptions to shipping in the next few months.

“The resurgence of the epidemic has been achieved,” the statistics office said in a statement. “The national economy has recovered.”

The slowdown hurts China’s trading partners by reducing demand for oil, food and consumer goods and restricting exports to foreign markets.

China’s latest figures are low, but Beijing has responded to its biggest outbreak since the outbreak began in 2020 with a “zero-COVID” policy that calls for isolating every person infected with the virus. The ruling party has changed the “strict cleaning” policy that targets homes or places where the disease has been infected but the restrictions affected areas with millions of people.

The ruling Communist Party is promising tax cuts, free rent and other subsidies to get companies back, but many forecasters expect China to fall short of the ruling party’s 5.5% growth target this year.

Other major economies are showing growth compared to the previous quarter, making their shares look lower than China’s. Beijing has for years reported growth only compared to a year ago, which was a short-term change, but has since released quarterly figures.

Forecasters say Beijing is using careful, targeted stimulus rather than all-out spending, a strategy that may take time to show results. China’s leaders worry that excessive spending could lead to more distressed housing prices or higher corporate debt, which they worry is too high.

Growth in the first half of the year was 2.5% over a year ago, one of the weakest in the last three decades.

Retail sales fell 0.7% from a year earlier in the first half after falling 11% in April.

Investment in industry, real estate and other fixed assets rose 6.1%, reflecting the ruling party’s efforts to boost growth by boosting construction spending and ordering public companies to spend more.

China recovered quickly from the pandemic in 2020, but activity weakened as the government tightened credit controls and its massive real estate industry, which supports millions of workers. Economic growth slowed due to a slowdown in construction and housing sales.

Investors are waiting to see what will happen to one of China’s largest manufacturers, the Evergrande Group. It has been struggling since last year to avoid repaying the $310 billion it owes to banks and bondholders.



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