Zero-Covid is driving China’s economy into a deeper crisis

For the second time this year, the non-independent central bank cut the key interest rate for one-year bank loans by 10 basis points to 2.75 percent.

Whurry from China While the government appears concerned about the latest worse-than-expected economic data, the country’s independent central bank on Monday cut its benchmark one-year bank lending rate by 10 basis points to 2.75 percent for the second time this year. The interest rate for short-term refinancing operations of banks was also reduced by the same amount. Until recently, central bankers in Beijing had already warned against pursuing a monetary policy completely at odds with the US Federal Reserve. But the demand for credit has turned out to be much worse than observers had hoped as a result of China’s brutal no-Covid policy. On Monday, the Beijing Statistics Bureau reported that as a result, industrial production in July grew 3.8 percent compared to the same month last year, much less than analysts had expected in advance. Retail sales also grew much slower than expected at 2.7 percent.

According to the government’s official statement, China’s economy narrowly escaped contraction in the second quarter and grew by only 0.4 percent compared to the same period last year. Why consumption in China is so weak and why companies invest so little can be seen every day across the country. For example, many people traveled from Shanghai to the tropical Chinese island of Hainan to relax after the brutal lockdown that lasted more than two months. Until recently, there were almost no new infections with the Covid virus.