How Long Can China Keep Up Its Zero-Covid Schtick?

Image source: Aekawit Rammak - Shutterstock

What's going on?

Data out on Monday showed that China’s economy struggled to get back on its feet last month.

What does this mean?

The world might be learning to live with Covid, but China’s still refusing to have anything to do with the little rascal. That led to a wave of new restrictions across the country in July, denting both consumer and business spending. Chinese retail sales, then, came in just 2.7% higher in July than the same time last year – a long way short of the 5% uptick analysts were expecting. Industrial production – a key driver of Chinese growth – was disappointing too, up just 3.8%. And with reports of more surges in Covid cases this month, things don’t look like they’re going to sort themselves out anytime soon.

Why should I care?

The bigger picture: What target?
The Chinese government has long been adamant that it would hit this year’s economic growth target of 5.5%, but it looks like it’s finally admitting defeat. Or not admitting anything: it didn’t mention the goal at all in a meeting last month, saying instead that the country would aim to achieve “the best outcome” possible for growth. That might be why its central bank unexpectedly cut a key interest rate on Monday for the first time since January, which it’s hoping will encourage businesses and consumers alike to spend, spend, spend.

For markets: How the tables have turned.
China’s key stock index fell after the news, meaning it’s now down around 3% in the past month. That just goes to show how its pandemic restrictions are setting it apart from other major economies: the US stock market has now climbed four weeks in a row amid signs that inflation is easing up, with the country’s key stock index up 11% this month.

Originally posted as part of the Finimize daily email.

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