A recent announcement by China’s government has shocked the world and raised concerns over the sustainability of China’s economic boom. The nation’s GDP growth rate has fallen to 1%, which many believe signals a dramatic slowdown in one of the largest economies in the world, especially after reports showed that urban unemployment had reached 6%. While it’s too early to tell what will happen next, here are some potential factors that could have led to this slowdown.

China’s Economy Suffered Its Worst Performance

China's Economy Suffered Its Worst Performance
Image Source: Yahoo Finance

China’s economy suffered its worst performance in over two years due to tough months of riot-curbing crackdowns, wreaking havoc on the country.

The nation’s gross domestic product in the world’s second-largest economy grew 0.4% over the three months to June 30 of this year compared to the same period last year, according to the National Bureau of Statistics on Friday. It was sharply lower than the 4.8% increase in the previous quarter and missed the 1% growth estimate in a Reuters poll. GDP shrank 2.6% on a quarterly basis in the second quarter.

The Initial Coronavirus Outbreak

The Initial Coronavirus Outbreak
Image Source: pharmaceutical Technology

This was China’s slowest quarterly growth since the first quarter of 2020 when the economy stalled as it worked to contain the initial coronavirus outbreak that began in Wuhan. GDP declined by 6.8% during that quarter, while the economy grew by 2.5% for the first half of this year, making the government’s 5.5% annual growth target appear out of reach.

Chinese Policy Makers Are Struggling With Mounting Difficulties

With Beijing’s zero-tolerance policy toward the Coronavirus and a real estate crisis that has led to rising bad debts and growing social unrest, Chinese policymakers face mounting challenges in keeping growth steady. Beijing’s firm stance against the virus had led to months of lockdowns across dozens of cities across the country, including Shanghai, the nation’s financial and shipping hub. Millions of people were trapped at home, shops were closed, and factories were shut, making a giant impact on consumer activity and trade lines.

Authorities Started Reopening The Economy

Authorities Started Reopening The Economy
Image Source: News Beezer

Last month, authorities lifted restrictions in some key cities to reopen the economy. It’s no surprise then that manufacturing and services have also improved in recent weeks. But Beijing’s rejection of the zero-Covid stance has led to serious doubts and a lack of investor sentiment. Consumer spending remains unsteady while the job market is experiencing pressure.