China’s ‘zero-COVID’ strategy taking its toll
The 'zero-COVID' strategy is disrupting manufacturing and hampering the global flow of goods from smartphones to iron ore, increasing inflation risks in the United States and Europe.
Exporting & Importing
Risk & Compliance
China’s leaders are struggling to reverse an economic slump without giving up anti-virus tactics that shut down Shanghai and other cities, adding to challenges for President Xi Jinping as he tries to extend his time in power.
The ruling Communist Party has declared its “zero-COVID” goal of preventing all infections takes priority over the economy. It is a decision with global implications and comes despite warnings by experts including the head of the World Health Organization that the goal might be unattainable.
“We don’t think it is sustainable,” the WHO director-general, Tedros Adhanom Ghebreyesus, said on May 10.
China kept infection numbers low until early this year with a strategy that shut down cities, but entailed soaring costs. Beijing has switched to “dynamic clearing” that seals buildings or neighborhoods if infections are found. But with thousands of new cases of the highly infectious omicron variant reported every day, that keeps most of Shanghai’s 25 million people at home. Big parts of Beijing and other cities with tens of millions of people also are closed.
That is disrupting manufacturing and hampering the global flow of goods from smartphones to iron ore, increasing inflation risks in the United States and Europe. Consumer spending is weak, chilling Chinese demand for imports.
The ruling party is promising tax refunds and other aid to struggling entrepreneurs that Beijing counts on to create jobs and wealth. Premier Li Keqiang, the No. 2 leader, warned last week the employment situation is “complex and grim.”
On May 11, Li called during a Cabinet meeting for officials to focus spending and credit policies on preventing job losses, state TV and the official Xinhua News Agency reported. They gave no details of possible new initiatives.
Despite promises of aid, forecasters say economic growth in the current quarter will fall as low as 1.8% over a year ago from an anemic 4.8% in the last quarter. Growth for the full year is forecast as low as 3.8%, below the ruling party’s official 5.5% target and less than half of 2021?s 8.1% expansion.
“The Chinese government is willing to make some sacrifices on the economy in the short term to trade for long-term growth,” said Nomura economist Ting Lu. However, he said, “achieving ‘zero COVID’ is quite challenging, because omicron is more infectious.”
A foreign ministry spokesman on May 11 defended China’s approach as realistic.
China’s strategy is “not to pursue zero infection but to control the epidemic situation in the shortest time at the lowest social cost,” said Zhao Lijian. “The vast majority of people in most areas in China live and work normally.”
Complaints about food shortages and other hardships and videos posted online showing people in Shanghai and other areas arguing with police have been deleted by censors.
In a sign private industry is weakening, 4.4 million companies closed last year while only 1.3 million new enterprises opened, down from 13.8 million in 2019, according to Choyleva.
COVID restrictions have closed factories or suspended access to manufacturing centers for autos, electronics and other industries including Changchun and Jilin in the northeast and Guangzhou and Shenzhen in the south.