Why Is China's Growth Rate Falling So Fast?
Although China’s economy remains on track to post strong growth for 2021 as a whole, its recent deceleration is striking. Reversing the slowdown will require policymakers to reform the ways in which they debate, vet, and implement new regulations and pandemic-control measures.
NEW YORK – In early 2021, the consensus forecast for Chinese GDP growth this year among 25 major global banks and other professional forecasters was 8.3%. In contrast, the Chinese government’s own growth target was around 6%, lower than the best guesses of 24 out of the 25 institutional forecasters. Did the government know something that outsiders had missed? Did it plan to do something that it regards as desirable even though it might compromise growth?
More recently, international banks have revised down their full-year growth projections for China as the economy’s expansion has slowed. Third-quarter growth was only 4.9% year on year, down from 18.3% and 7.9% in the first two quarters, respectively. The high first-quarter year-on-year growth came in large part because of the negative growth in the first quarter of 2020 due to pandemic-induced lockdowns. The low third-quarter growth is raising concerns about the growth prospects in the fourth quarter and next year.
Some of the reduction in growth stems from China’s zero-tolerance policy toward COVID-19, which calls for more frequent lockdowns than in most other countries. A spate of local COVID outbreaks in the summer has triggered lockdowns or travel restrictions in multiple Chinese cities. These have not only reduced manufacturing output but also severely affected many service-sector jobs just as tourism was beginning to boom.