China Zero Covid: China Fights Economic Recession, Sticking to Expensive ‘Zero Covid’
The ruling Communist Party has declared that the “zero-covid” goal of preventing all infections takes precedence over the economy. It comes despite a decision with global implications and warnings from experts, including the head of the World Health Organization, that the goal may be unattainable.
“We don’t think it’s sustainable,” WHO Director-General Tedros Adhanam Ghebreiss said on Tuesday.
China has kept the number of infections low until the beginning of this year, with a strategy that shuts down cities but carries rising costs. Beijing has switched to “dynamic clearing” which seals the building or surrounding area if an infection is found. But thousands of new cases of the highly contagious Omicron variant are reported every day, leaving 25 million people in Shanghai at home. Large parts of Beijing and other cities with millions of people are also closed.
It is disrupting production and disrupting the global flow of goods from smartphones to iron ore, increasing the risk of inflation in the United States and Europe. Consumer spending is weak, and Chinese demand for imports is declining.
The ruling party is promising tax refunds and other assistance to struggling entrepreneurs that Beijing relies on to create jobs and wealth.
Li Keqiang, the No. 2 leader, warned last week that the employment situation was “complex and dire.”
On Wednesday, Lee called on officials during a cabinet meeting to focus on spending and debt policy to prevent job losses, state TV and the official Xinhua News Agency reported. They did not elaborate on possible new initiatives.
Despite promises of help, forecasters say economic growth in the current quarter will be 1.8% lower than a year earlier, down from 4.8% in the previous quarter. The full-year growth forecast is as low as 3.8%, well below the ruling party’s official 5.5% target and less than half of the 8.21% expansion in 2021.
“The Chinese government is willing to make some concessions to the economy in the short term in order to trade for long-term growth,” said Nomura economist Ting Lu. However, he said, “Achieving zero COVID ‘is quite challenging, because Omicron is more contagious.”
On Wednesday, a Foreign Ministry spokesman defended China’s position as realistic.
Zhao Lijian said China’s strategy is to “control the epidemic situation in the shortest possible time at the lowest possible social cost, not to try to eradicate the virus.” “The vast majority of people in most parts of China live and work normally.”
Complaints of food shortages and other hardships and videos posted online show people arguing with police in Shanghai and other areas have been removed by censors.
Public frustration and economic losses ahead of the ruling party’s congress in October or November adds to the complexity for Shir, where he will try to break with tradition and is expected to reward himself as leader for a third five-year term.
Xi, the most influential Chinese leader since at least the 1980s, is still expected to secure another term. But experts say rivals could benefit from a reduction in power. Proponents of market-style economic reform also want to bring back policies that favor state-owned enterprises and tighten control of China’s economic engine private sector.
Diana Choileva of Enodo Economics said in a report that the debate over the cost of anti-virus strategies gave “an opening to her factional opponents”, including a “deep relationship with the business sector”. “They are more attracted to Shi and his supporters than to Zero-Covid’s influence on the economy and the middle class.”
Signs that the private industry is weakening, 4.4 million companies closed last year while only 1.3 million new ventures opened, down from 13.8 million in 2019, according to Choyleva.
The Covid curfew has closed factories or suspended access to manufacturing centers in the auto, electronics and other industries, including Changchun and Jilin in the northeast and Guangzhou and Shenzhen in the south.
In the central city of Zhenzhou, the Xiao Nan Guo restaurant closed on May 4 but is still paying its 100 employees, according to an employee named Wang Huikin. He said business had shrunk by about 40% before the city of 13 million people stopped talking about providing din-in services to restaurants.
“If the situation persists for a few weeks, the company can handle it,” Wang said. “If it is long lasting, there will be problems because the cost will be much higher.”
In Shanghai, most businesses have been shutting down since the end of March, with an estimated cost-cutting activity of several billion dollars a month.
Cargo volume at the world’s busiest port Shanghai is 30% lower. Economists say foreign customers are looking for non-Chinese suppliers who may be more likely to supply but may charge more.
Tommy Woo of Oxford Economics said that in the Western economy “this will further increase the risk of stagnation this year”, citing a scenario of rising prices and a decline in economic activity.
Export growth in April fell to 3.7% from 15.7% a year earlier than in March. Imports rose 0.7%, down from 1% in the previous month.
China was the only major economy to grow in 2020 after Beijing shut down factories, shops and offices nationwide to fight the virus. The ruling party declared victory a few months later and restarted the economy.
Last year, the Shir government returned to long-term planning, which included trying to reduce excessive real estate debt. It plunged into construction and real estate sales in mid-2021.
As a sign of the severity of the economic woes, Beijing faces appeals from foreign companies that usually avoid questioning government policy for fear of reprisals.
The American Chamber of Commerce in China says its members want a “more optimal balance” between disease prevention and business.
According to the chamber, more than half of the 121 companies that responded to the April 29-May 5 survey have delayed or reduced investments.
“Members do not see any light at the end of the tunnel,” the chamber’s chairman, Kalom Rafferti, said in a statement.
At a May 5 meeting, party leaders appeared to reject such a petition and the “living with the virus” position adopted by other governments.
Relaxing the virus-control system would “seriously affect infections, serious illness and death” and “severely affect” the economy, they said in a statement. To put an end to the debate, it says “all spheres of society” should “integrate their thinking and actions” with party leaders.
Instead of abandoning their growth goals to pursue “zero-covid,” party leaders “want both,” McCurry Group’s Larry Hu and Genu G. said in a report.
“Zero-Covid is a tough sale for China’s top leaders at the cost of rising unemployment, especially in a year of significant political significance,” they wrote.
This week, the industry ministry asked local governments to help entrepreneurs pay rent, utilities and other costs. It warned that “the production situation is not optimistic.”
“We urgently need to take more effective action,” the ministry said in a statement.
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