China’s COVID crackdown hits economic growth

China's economy has slowed dramatically for the first time since the outbreak of the COVID-19 pandemic, with experts now predicting that the country will miss its annual growth target of 5.5 percent.

The world's manufacturing engine has posted its lowest growth in 30 years as a result of premier Xi Jinping's zero COVID policy.

Under this policy, Beijing has enacted snap lockdowns and restrictions on people's mobility. As of July 15, there were still 31 cities under full or partial lockdowns including regions which account for 17.5 percent of the country's economic activity.

Retail sales grew 2.7 percent while industrial output grew 3.8 percent compared to last year's figures. This is down from the previous month and far short of analysts' forecasts.

Steadily rising youth unemployment is another wrench in China's economy, with new graduates flooding in already saturated job market according to China's National Bureau of Statistics. This comes despite a marginal improvement in nationwide unemployment rates.

These lacklustre results come after the world's second-biggest economy barely avoided contraction in the second quarter.

In an effort to avoid a slowdown, the country's central bank slashed interest rates following this data. However experts believe that a devastating heat wave and power outages could weigh heavily on China's economy going forward.

China issues first national drought alert, battles to save crops

So how will this impact the globe's supply chain, and how much can the government deal with at this juncture? To discuss this, CNBC-TV18 spoke to Andrew KP Leung, Independent China Strategist; Ananth Krishnan, China Correspondent for The Hindu and Shaun Rein, MD of CMR.

Rein said, “There are some serious warning signs that investors need to look at, because it is easily fixed but I don't think the government wants to easily fix it. So one party of the heatwave, it has been incredibly hot in Shanghai in the last few months, 41 degrees, so a lot of people don't want to go outside shopping. The biggest problem though are the COVID policies. They are spreading fear and lack of confidence in the Chinese consumer population and in business.”

He spoke about the time after the Shanghai lockdown when he went on a trip for seven weeks and he travelled around Xinjiang and Hunan. "Almost every day, I had to get a COVID test, which took between one and two hours out of my day, which was a lack of productivity. So until you start to see an easing of the COVID policies, which I don't think is going to happen anytime soon the economy is going to be in for a rough time,” he said.

Krishnan said that he doesn't see any steps that would suggest a move away from the dynamic zero COVID. "Here in Beijing, we are still forced to take tests every 72 hours without which you don't get access to most places. You don't see any of the signs that would suggest an exit strategy such as a focus on a booster vaccination campaign, or messaging the public saying that COVID is not a life-threatening illness anymore for vaccinated. These are the kinds of messages you don't hear in China, and people are still afraid of getting COVID. So you don't see any of the signs that would suggest to move away from zero COVID,” he said.

Krishnan said that until there is a concerted effort, an exit strategy, which isn't at the moment, they are going to continue with this even though it is causing a lot of economic pain.