- Cecilia Barria
- BBC News World
December 5, 2022
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China’s economy is on track to grow less than 3% this year, well below government expectations.
The strict lockdowns of Covid Zero Policy were a severe blow to the Chinese economy and the effects are becoming more and more evident.
The youth unemployment rate hit a record 20%, corporate profits fell and manufacturing contracted again in November.
For a country accustomed to annual growth rates of almost 9% over the last few decades, things get complicated.
International forecasts assume that economic growth will not exceed 3% this year, which is well below government expectations.
If this continues, the Chinese economy will see the slowest expansion in more than four decades, barring the 2020 crisis at the height of the pandemic.
Although the Chinese government announced on Thursday (01/12) that it would be easing some of the restrictions of the zeroCovid policy, it is still unclear what the new measures will look like at a time when infections from the Omicron variant are increasing in the Population not vaccinated in bulk.
Fed up with lockdowns, hundreds of people have staged unprecedented protests in recent days sparked by a fire that killed 10 people at a residential building.
Protesters attributed the deaths to the fact that the building’s doors were blocked to prevent contracting the virus, which authorities deny.
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Demonstrators took to the streets to protest the strict lockdowns
“We don’t want Covid tests, we want freedom,” shouted a group of young people on the streets of Shanghai during a demonstration that also included screams against President Xi Jinping’s government, unprecedented in the Asian country is.
While restrictions on free movement have eroded consumer confidence and even angered those facing long lockdowns the government faces a dilemma of shifting its focus from health to stimulating the economy, risking that infections get out of control.
“An enormous damage to the economy”
“Covid Zero is causing tremendous damage to the Chinese economy,” Nancy Qian, an economics professor at Northwestern University’s Kellogg Business School in the US, told BBC News Mundo, the BBC’s Spanishlanguage news service.
Lockdowns have caused significant disruptions to product supply chains around the world. And inside the country, the impact on the population has been very harsh.
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Any weakening of the world’s second largest economy has global repercussions.
During Shanghai’s lockdown, Qian notes, food deliveries for residents locked in the city “rotted on the streets while citizens starved.”
Months of largescale lockdowns in a city like Beijing or Shanghai, the researcher explains, reduce economic growth by at least 4%.
“If you add up all the lockdowns that have happened, the negative impact is huge.”
Any weakening of the world’s second largest economy has global ramifications, all the more so when organizations like the International Monetary Fund (IMF) predict that around a third of countries will enter recession by 2023.
How the iPhone became a symbol of despair
Investors and markets are worried about the rise in infections given China’s failure to conduct a mass vaccination campaign, further adding to uncertainty about the economic future.
On the other hand, “people in the country are spending less money on things like cars and smartphones,” another sign of the impact of the Covidzero policy, says journalist Suranjana Tewari, BBC Asia business correspondent.
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Infections among the population not massively vaccinated by President Xi Jinping’s government continue to rise.
Against the backdrop, she adds that “China is facing a number of challenges, including the real estate crisis, crackdowns on tech companies and the impact of lower demand as a result of the global slowdown.”
Multinational companies like Apple are seeing the impact of the zeroCovid policy on their production lines.
When there was a shortage of food, many employees who were locked up fled the factory, jumping walls and taking freeways to get home. An act of desperation that affected the manufacture of a mass consumer product in the world.
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More than two million people remained in quarantine facilities
While the severity of the lockdowns could change in the coming weeks, they have so far applied to cities that account for about a quarter of China’s gross domestic product (GDP), according to an index compiled by Nomura, a Japanese investment bank.
“It might get worse before it gets better”
The Covidzero policy has been a major hurdle for the Chinese economy in recent months, argues Mark Williams, chief Asia economist at consultancy Capital Economics.
It forced cities to introduce lockdowns and scared everyone to go out for fear of quarantine, he told BBC News Mundo.
More than two million people remained in quarantine facilities.
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In the event of a Covid case, entire buildings are closed and people often run out of food
“It’s possible that it will get worse before it gets better,” he warns.
“The authorities will not want to relax the zero Covid policy until the vulnerable are well vaccinated and that will take months.”
Reopening a country takes time. Even if China decides to end the zeroCovid policy now, some analysts say the positive economic impact would likely be felt around 2024.
But everything depends on the reopening plan laid out by the Chinese authorities and how quickly it is implemented.
“No doubt there will be an opening”
Some economists are confident that sooner or later there will be a change in policy.
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Despite all the upheavals, economists believe that the situation will improve next year
“Openingup will be slow, probably with a few regressions, but no doubt there will be openingup,” Alicia GarcíaHerrero, chief AsiaPacific economist at investment bank Natixis, told BBC News Mundo.
“China is trying to switch the zeroCovid policy to the Hong Kong model in terms of a very quick lockdown,” he adds.
“(But) investment and consumption are clearly not going to come back quickly because people are very worried.”
While reopening will be a long and difficult process, says GarcíaHerrero, “next year’s economy will be better anyway.”