Analysis: China’s economy is in bad shape and could stay that way for a while

The world’s second biggest economy is grappling with the impact of severe drought and its vast real estate sector is suffering the consequences of running up too much debt. But the situation is being made much worse by Bejing’s adherence to a The latest restrictions demonstrate China’s uncompromising attitude to stamping out the virus with the strictest control measures, despite the damage.”Beijing appears willing to absorb the economic and social costs that stem from its zero-Covid policy because the alternative — widespread infections along with corresponding hospitalizations and deaths — represents an even greater threat to the government’s legitimacy,” said Craig Singleton, senior China fellow at the Foundation for Defense of Democracies, a DC-based think tank.For Chinese leader Xi Jinping, maintaining that legitimacy is more vital than ever as he seeks to be selected for an unprecedented third term when the Communist Party meets for its most important congress in a decade “Even then, the Party is running short on both time and available policy levers to address many of the most pressing systemic threats to China’s economy,” he added.The economy will continue to worsen in the next few months, said Raymond Yeung, chief Greater China economist for ANZ Research. Local governments will be “more inclined to prioritizing zero-Covid and snuffing out the virus outbreaks” as the party congress approaches, he added.Tightening of Covid restrictions will hit consumption and investment during China’s “Golden September, Silver October,” traditionally the peak season for home sales.In the meantime, a sharp slowdown in the global economy doesn’t bode well for China’s growth either, Yeung said, as weakening demand from the US and European markets will weigh on China’s exports.He now expects Chinese GDP to grow by just 3% this year, missing Beijing’s official target of 5.5% by a wide margin. Other analysts are even more bearish. Nomura cut its forecast to 2.7% this week.No exit until early 2023?More than two years into the pandemic, Beijing is sticking to its extreme approach to the virus with forced quarantines, mass mandatory testing, and snap lockdowns.The policy was deemed successful in the early stage of the pandemic. China managed to keep the virus at bay in 2020 and 2021 and stave off the large number of deaths many other countries suffered, while In “The picture is not pretty, as China continues to battle the broadest wave of Covid infections thus far,” Nomura analysts said in a research report on Tuesday. Jobs and property issuesChina’s job market has deteriorated in the past few months. Most recent data showed that the unemployment rate among 16 to 24 year-olds hit an all-time high of 19.9% in July, the fourth consecutive month it had broken records.That means China now has about 21 million jobless youth in cities and towns. Rural unemployment isn’t included in official figures.”The most worrying issue is jobs,” said ANZ’s Yeung, adding that youth unemployment could climb to 20% or higher.Other economists say more job losses are likely this year as social distancing measures hurt the catering and retail industries, which in turn piles pressure on manufacturers.The deepening property market downturn is another major drag. The sector, which accounts for as much as 30% of China’s GDP, has been crippled by a government campaign since 2020 to rein in reckless borrowing and curb speculative trading. Property prices have been falling, as have sales of new homes.While there could be a relaxation of zero-Covid rules in 2023, housing policy may not look very different after the party congress. “We are unlikely to see the economy repeat the previous high growth of 5.5% or 6% for the next two years,” said Yeung.CNN’s Beijing bureau contributed to this report.