Virendra Pandit
New Delhi: The fast resurgence of Covid-19 cases, strict zero-tolerance policy, and fresh lockdowns may affect China’s economy severely, a new study showed on Wednesday.
No official figures for fresh infections were available. But the extent of lockdowns showed these cases could be very high.
Currently, millions of Chinese are under lockdown in different areas, particularly in north-eastern provinces, as fresh infection cases surged over the last few weeks. Even Shanghai, the country’s largest city and financial hub, was completely locked down on Tuesday. Many people protested the strict rules, took to social media, and tried to store up essential commodities.
These strict lockdowns may cost China at least USD 46 billion a month or 3.1 percent of its Gross Domestic Product (GDP) and the impact could be double if more cities tighten restrictions, the media reported on Wednesday.
In the last few weeks, China, the second-largest economy, has seen its worst Covid outbreak since the initial height of the pandemic in early 2020, which pushed the economy southward.
The latest surge in pandemic cases, which has forced millions of Chinese to queue up at testing centers, could hit the first-quarter GDP by at least half of a percentage point, the media, quoting an economist at the Chinese University of Hong Kong, said.
The unprecedented lockdown of Shanghai’s 26 million people is testing the limits of China’s hard-line ‘Zero-Covid’ strategy, which is shaking markets far beyond the Communist country’s borders. Shanghai alone could reduce the country’s real GDP by 4 percent. It has forced millions of citizens to stay home and undergo mandatory coronavirus testing as the financial hub tries to stamp out a growing Omicron outbreak.
According to the report quoting trucking data in Shanghai, from where nearly 2 million trucks crisscross China and whose movements are highly correlated with local economics, economic activity had fallen by 40 percent below normal even before the fresh lockdown began.
As infections surge unabated, more cities may follow Shenzhen’s approach, stopping public transportation and preventing people from entering and leaving the city. The lockdown will deal a double blow to consumption and production, and its spillover effect will increase the risk to the global supply chain, the report warned.
In Changchun, the capital of Jilian province, which imposed a lockdown over surging Omicron cases on March 11, economic activity levels plunged over 66 percent from normal levels. Over 9 million residents were confined to homes and forced to undergo three rounds of mass testing, as non-essential businesses were closed and transport links suspended. Changchun, the industrial center of northeast China, accounts for 11 percent of China’s annual auto production.
A week-long lockdown in Shenzhen, during which 34 percent of residents tested thrice, reduced economic activity. In a worst-case scenario, economists predict, the lockdown of all cities for one month would cut China’s GDP by 53 percent. If China’s four largest cities underwent a strict lockdown together, inflation-adjusted GDP would fall 12 percent.
The economic costs of China’s dynamic ‘Zero-Covid’ policy are too high to ignore. Investors’ doubts about large-scale city closures also caused China’s stock market to plummet sharply.
Experts are questioning the sustainability of such an approach as China enters the third year of the pandemic. They called the latest resurgence of the pandemic a most severe onslaught since the early epidemic in Wuhan. After two years of fighting the pandemic with rigorous measures, different sectors have shown fatigue toward the Zero-Covid strategy.
In Hong Kong, this approach led to the hoarding of food supplies, as the people feared they would take away their patients to put them in isolation.