The World Bank slashed its growth forecast for China for 2022-2023 on Tuesday, against the backdrop of the economy’s slowdown as a result of China’s zero-Covid policy and an ongoing real estate crisis.
The world’s second-largest economy is expected to see its GDP growth at 2.7% this year, and 4.3% next year, figures from the World Bank show. In its previous forecast in June, the bank had already cast doubt on the growth prospects of the Chinese economy. Back then, it was more optimistic: the bank originally forecast 4.3% growth this year, and 8.1% in 2023.
Following rare protests and growing international pressure, China ditched much of its anti-Covid restrictions in December. These rules, some of the most prohibitive in the world, have been in place for nearly three years in China. Repeated covid lockdowns have plunged millions into forced isolation and severely crippled the economy of major Chinese cities, especially which possess economically important ports.
Experts have now warned that China is ill-prepared for the wave of infections set to come as a result of reopening to the world. Millions of elderly and vulnerable people in China are still not vaccinated. Already, the Chinese capital of Beijing, with its 22 million inhabitants, is experiencing a large surge in infections, which has spread with lightning speed in recent days.
This surge in infections has already curbed Chinese consumption, as its citizens chose to stay at home for fear of being infected.
“China’s growth outlook is subject to significant risks. Recurrent Covid-19 outbreaks, the possibility of renewed mobility restrictions and precautionary behaviour to slow the spread of the virus could lead to longer-than-expected disruption in economic activity,” the World Bank warns.
Real Estate troubles
China’s real estate crisis is the cause of even more concern for the Chinese economy. Traditionally, this sector was an engine of growth for the Chinese economy, but experts have long warned of an economic bubble, with many new buildings across the country sitting empty or abandoned.
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In December 2021, one of China’s largest property developers, Evergrande, defaulted on its debt, causing panic across the global economy. In July 2022, another major developer, Shimao Group, also defaulted on a $1 billion bond, sparking fears of the progressive collapse of the property sector.
China’s construction sector represents more than a quarter of the country’s GDP, but has suffered massively since the introduction of measures from the central government to reduce corporate debt.
“Persistent stress in the real estate sector could have wider macroeconomic and financial spillover. China’s economy is also vulnerable to climate change, highly uncertain world growth prospects, greater-than-expected tightening in global financial conditions, and heightened geopolitical tensions,” the bank said.
