Fast, accurate and too difficult? The closure threatens to halt the Chinese economy | Chinese economy
FifthEteran truck driver Lorry Meng Hong has become an unexpected star on social media in recent weeks. Since March, his short video about life on the road during the Covid outbreak has been on Douyin, and the Chinese version of TikTok has garnered millions of likes.
Most of Meng’s videos were about “spreading positive energy” as he wrote in his account description. But on April 13, he began to complain about what happened when drivers transported goods to Shanghai. “After we delivered the food, we were quarantined [after we left] Or locked up in Shanghai. “
With China’s most populous city entering a strict lockdown this month, local governments in nearby areas have set up roadblocks and closed highways to limit the potential spread of omicron, leaving logistics chains tragically disrupted. “As long as you make a trip to Shanghai, very few other cities will let you in,” Meng complained. He said drivers are now refusing to go there.
The post reverberated across China and is a microcosm of the uncertainty facing the world’s second largest economy at the moment. The ruling party’s “zero Covid” policy has so far resulted in at least 45 cities under some form of lockdown, and Beijing is showing no sign of changing course in its efforts to stem the spread of the virus.
“Companies need signs of stability’
Last Sunday, residents of the six metropolitan areas of Wuhu, a city of 3.6 million people in eastern Anhui province, woke up to a sudden shutdown after a student at a school tested positive the day before. Officials say they are working on a three-word principle in addressing this type of situation: fast, accurate and difficult.
But the unpredictable nature of such a practice inevitably led to economic losses as the shutdowns affected 50% of China’s total output, according to local economists.
Chinese and foreign companies were equally affected. According to a recent survey by the German Chamber of Commerce in China, only about 7% of German companies surveyed reported having no impact on their Chinese business operations as a result of Covid-19. Taking geopolitical tensions into account, a third of respondents said they have suspended planned business or investments in the country.
“What businesses need now are signs of stability,” the chamber said in a recent report, urging EU leaders to raise their concerns with Chinese decision-makers. “With the German business community in the midst of the current Covid-19 wave in China, they desperately need an indication of the direction of the government’s Covid strategy to reduce the severe impact on business operations and supply chains.”
‘stagnation growth’ warning
Beijing set its annual GDP growth target last month at “about 5.5%”, but economists say that increasingly looks like a stretch. Last week, the International Monetary Fund cut its forecast for the world’s second largest economy this year to 4.4% as China begins to feel the effects of Russia’s invasion of Ukraine as well as the lockdowns.
On Thursday, Nomura went even further, lowering its annual growth forecast for China from 4.3% to 3.9% this year. With no easing in its aggressive containment strategy in sight, the Japanese company said its baseline estimate is that China’s growth in the second quarter will expand by just 1.8%.
Consumption and net exports are two drivers of China’s economic growth, said Mary Lovely, head of the China program at the Peterson Institute for International Economics in Washington, D.C. “[But] When we look at these two drivers going forward, we see some serious danger signs,” she said, warning that China could experience a “stagnation of growth” in the current quarter. “Stagnation of growth” refers to an economy that is slowing in growth but with high unemployment.
Achieving economic growth has always been crucial to the legitimacy of China’s ruling Communist Party. This is particularly the case in 2022 when the caucus will be held every five years in the fall. President Xi Jinping is expected to continue his rule, in an extraordinary breach of previous norms.
Stability – politically and economically – is key to Beijing’s rulers. Lockdowns, disease risks and uncertainty reduce consumption and investment, which could create jobs, Lovely added.
According to Chinese data released this week, the economy has been facing headwinds since last month, when Omicron started spreading. The unemployment rate in 31 major Chinese cities reached 6% in March, a record high. Unemployment among 16-24-year-olds was 16%, hitting an eight-month high.
Unemployment, particularly among younger workers, is a source of deep concern to authorities, Lovely said, as it fuels social discontent. It also means loss of experience for these future workers, reduced productivity and lifetime earnings. Training the youth is essential for China to continue maintaining healthy growth as the population ages.”
But there is greater concern for Beijing. Last week, the head of the International Monetary Fund, Kristalina Georgieva, warned that China’s consumption was running short. “Instead of diverting money to public investment, move it into people’s pockets, so there is more dynamism coming from the consumption boom,” she suggested.
For a long time, China has tried to build a consumption-driven economy. Jenny Yan, chief China economist at ICBC Standard Bank, said economic data indicates that China has not yet seen a meaningful recovery in real household income growth since the first round of the epidemic in 2020. “This is now exacerbated by local lockdowns because people Physically they can’t go out to consume, and retail sales data for March shows that even online sales have been hit hard by supply chain and logistical disruptions.”
Yan said there is no easy way out of the current zero-Covid policy dilemma. This means that consumer confidence is expected to continue weakening even with monetary and fiscal support. In addition, structural problems in the Chinese economy still exist.
“So there is no magic bullet. Even if the current zero Covid policy is relaxed, the high prevalence of Covid cases will still affect economic activity.”