Good luck spinning this quarterly report. On Friday (15 July), China’s National Statistics Bureau will release GDP data for Q2 2022. And then its citizens, and the watching world, can calculate how on earth will Beijing achieve its ambitious, full-year growth target of “around 5.5%”, announced in March. 

The numbers will be weak and worrying, with Xi Jinping’s zero-Covid obsession to blame. A negative number will not be a surprise at all, but currently, according to the Enodo nowcast model, real GDP is expected to grow marginally by 0.09% quarter-on-quarter in Q2. 

If the government dares to publish a negative figure, this will mark only the second time since China started publishing QoQ growth data at the end of 2010 that China’s official real GDP fell. The first time? Q1 2020, when the pandemic brought the economy to a standstill. 

Two years on, Covid-19 is still wreaking havoc across the world’s second-largest economy. Xi’s determination to stamp out Covid infections whenever they occur, even as the rest of the world accepts the need to live with the virus, meant local officials imposed lockdowns in dozens of cities during Q2. 

Now the economic fallout is clear and brutal. 

The usual caveats about Chinese government stats still stand: treat all numbers with caution and consider the political environment that encourages officials to manipulate data. GDP figures nevertheless represent key indicators for investors and the global economy. Back in April, Xi was reported to have ordered officials to ensure that China’s economic growth outpaces the US in 2022, to demonstrate the superiority of Beijing’s one-party system. 

But for most of Q2 he also made clear the primacy of strict Covid controls, and officials nationwide knew which measure mattered more. But given that it is a “selection year”,  Xi has been obliged to make strategic concessions, especially regarding the zero-Covid strategy. 

Since late May, he seems to have acquiesced in the views of other Politburo Standing Committee members and retired party elders that resuscitating the economy, and in particular ironing out logistics snafus caused by the lockdown of major cities, should be given as much priority as the total elimination of Covid.

It is in Xi’s economic and political interest to convene the Party’s 20th congress as early as the start of September rather than wait until October or November as has been the case during the past 25 years. Once he secures his third term, he will find it easier to alter his Covid policy to bolster the economy. 

The most likely path is to segregate the vulnerable, who tend to be the non-productive parts of the population and allow the rest to build up natural immunity alongside continued efforts to improve domestic vaccines and treatments. But this approach is unlikely to be plain sailing.

The IMF’s April forecast for the US was 3.7% growth in 2022, which now ranks at the upper end of the range China can realistically reach. In late June, on a visit to Wuhan, the epicentre of the first Covid outbreak, Xi appeared to moderate his earlier enthusiasm for meeting the 2022 GDP target of 5.5%. “(We) are striving to achieve a sound level of economic development this year,” he said. 

Sound economic development, though, is unlikely to be achieved in coming quarters when all Beijing can muster to steady the economy is old-style growth. China will become even more heavily indebted this year, given Xi’s continued dependence on jacking up growth by using debt to finance infrastructure and related projects. 

The consumer will continue to be in the doldrums despite the authorities’ attempts at resuscitation as long as Beijing remains firm on redistributing income from the well-off urbanites to the poorer, and exacerbating the financial repression of households, as we have argued before.