China’s economy slowed unexpectedly in July, with factory activity taking a hit from Beijing’s zero-Covid policy.

Industrial output increased by only 3.8% in July from a year earlier, according to new figures from China’s National Bureau of Statistics (NBS) – well below the 4.6% predicted by analysts polled by Reuters.

China’s economy is also expected to miss its 5.5% growth target for the year for the first time since 2015.

Exports key

China recently reported a record trade surplus but analysts have argued that exports could slow.

“China’s growth in [the second half] will be significantly hindered by its zero-Covid strategy, the downward spiral of the property markets and a likely slowdown of export growth,” Ting Lu, chief China economist at financial services firm Nomura, told the FT.

ING has warned that declining strength in exports could lead to a further downgrade of GDP growth for the country. The Dutch firm has already cut its growth forecast for the year from 4.4% to 4%.

Government support

To support the economy, the Chinese central bank today unexpectedly lowered interest rates on key lending facilities for the second time this year, reports the Guardian.

The decision highlights growing anxiety in Beijing as it tries to combat a decline in consumer demand triggered by its zero-Covid policy, as well as the fallout from cash-strapped property developers and slowing global growth.

New lockdowns have been announced in several Chinese cities, including Haikou on the southern island of Hainan, as well as Urumqi in the western Xinjiang region.

Trade surplus

The economic downturn comes after China recently posted its biggest ever trade surplus – with exports growing to $333 billion in July.

The total trade surplus reached $101.3 billion for the month, breaking the record previously set in June. Exports rose by 18% when compared to July 2021.