Residents line up for mass Covid-19 testing on January 9, 2022, in Tianjin, after the city reported 20 cases in the news over the weekend.
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BEIJING – China’s no-Covid policy to control the pandemic affects consumers more than factories, economists say.
As local governments impose more travel restrictions and some lockdowns to contain the omicron Covid variant, analysts are turning cautious towards the Chinese economy. Goldman Sachs cuts growth forecast of the year on Tuesday.
But analysts focus on the impact on China’s already sluggish consumer spending.
Omicron’s high transmission capacity means that the costs of China’s zero-Covid policy are rising, while the benefits are falling, said Ting Lu, Nomura’s Head of China Economics in a report. on Monday. He noted that in the hospitality sector, business activity has not yet recovered to its pre-pandemic level and that industry employees may be pulling out of savings and spending less.
Not on the list of costs is production.
On the plus side, “Beijing’s zero-Covid strategy, plus Beijing’s ability to mobilize all resources, is said to have significantly benefited its people and economy, with the main death toll being The formula is only 4 people since mid-April 2020, factories lay off all cylinders, and an impressive 31.0% [year-on-year] Nomura’s Mr. Lu said.
Since the outbreak of the pandemic in early 2020, China’s policy has used quarantine and travel restrictions – whether within the city or with other countries – to control the outbreak. After a recession in the first quarter, the country became the only major economy to grow that year.
According to analysis by Dan Wang, chief economist at Hang Seng China, the biggest impact of the zero-Covid policy is on hotels and restaurants. Her research shows that manufacturing and agriculture are affected the least and contribute the most to growth.
Wang’s analysis compared GDP figures for 2020 and 2021 with the four-year average of China’s annual GDP growth from 2016 to 2019, before the pandemic.
“By containing the spread of Covid, China [has] can make sure that all the nodes along the supply chain are working so that actually agricultural and industrial output … are above trend values,” she said in a phone interview on last week.
Industrial production grew by 2.8% in 2020 and 10.1% in the first 11 months of 2021 compared to the same period last year. China’s factory activity unexpectedly increased in December, according to an official metric known as the Purchasing Managers’ Index.
Why are factories less affected?
Although China’s economy faces a number of challenges from soaring commodity prices to a crackdown on a massive real estate industry, economic data suggest a resilience in Chinese manufacturing. factories.
Yue Su, chief economist at The Economist Intelligence Unit, said that in China, manufacturers are less affected by city closures because factories are often scattered in suburban industrial zones. where employees live in dormitories.
How did she notice? Apple supplier Foxconn was able to maintain production at the factory in Zhengzhou, Henan, this past summer despite the historic flood killed more than 300 people in the province.
Su hopes that different approaches by local governments in implementing the zero-Covid policy will lead to different economic effects across provinces this year.
“For example, in Shanghai, when there are positive cases, they will just lock down the district,” she said. “But for governments with limited healthcare resources[s], they tend to shut down entire cities at once, like what happened in Xi’an. “
Xi’an in central China is one of the many industrial centers of the country. The closures since the end of December in the city of 13 million people have contributed to Citi Chief China Economist Li-Gang Liu’s expectations that industrial production could slow to 3.5% year-on-year growth. same period last year in December, from 3.8% in November.
However, Liu expects China’s trade growth to “remain strong” despite the high level of the past two years.
More than half of the goods produced for China’s export come from the provinces of Guangdong, Jiangsu and Zhejiang, on the south or southeast coast near Shanghai. Less developed areas are in central and western China, a country of 1.4 billion people.
China’s export growth remains resilient throughout 2021, despite numerous warnings about slowing demand from abroad.
The risk is that this time, factories in other countries could operate if their governments decide to pursue a strategy of living with Covid.
“China’s zero-Covid policy can on the one hand ensure retail, industrial activity can continue, but if the world succeeds in ‘living with [the] “China could be at risk on the growth divergence between these two countries,” said Gary Ng, Asia-Pacific economist at Natixis.
Political risk
Analysts expect China to stick to the No-Division policy until the end of the year due to key political events, from the Beijing Winter Olympics in February to the Communist Party leadership meeting. Nationality is expected in the fall.
That puts additional pressure on local government leaders, who are often fired following a flurry of Covid cases in their cities.
Strict policy has become politically sensitive in other ways. US-based consulting firm Eurasia Group on January 3 named the top risk for 2022 as China’s failure to reach zero-Covid, which would require tighter lockdowns and added chain disruptions. supply. Chinese state media was quick to criticize the report with English-language opinion pieces and a caricature.
Authorities are also concerned about the country’s already tight hospital capacity.
China’s Center for Disease Control and Prevention published a study in November That said, shifting to other countries’ strategy of coexistence would likely lead to hundreds of thousands of new cases daily and wreak havoc on national health systems.
The Covid omicron variant that emerged in late November is a heavily mutated version of the highly transmissible coronavirus.
Early reports suggest that omicrons may be less deadly than other strains of Covid. But the World Health Organization said on Tuesday that omicrons can cause life-threatening illness in unvaccinated people, the elderly, and people with underlying medical conditions.
Mainland China reported 124 new, locally transmitted cases on Wednesday, out of a total of 3,460 existing cases – and no new deaths. New cases in Xi’an city have fallen to six, down from 63 a week earlier. United States, Covid deaths average 1,700 a day, While the number of people hospitalized reached a record 132,646 as of Monday, according to Reuters.
