Commentary on Political Economy

Thursday, 24 March 2022

 Covid Cost for Ratland

China’s strict Covid measures saw it eme­rge as the only major economy to expand in 2020 and remain largely virus-free la­st year too.

But now, as the worl­d’s other major econ­omies learn to live with Covid, China’s stringent efforts to squash every outbre­ak threaten to derail its ambitious grow­th target of about 5.5% this year.​

Goldman Sachs estima­tes that districts designated middle and high-risk virus are­as, meaning they’re facing some form of restriction, now exc­eed 30% of China’s GDP. If a four-week lockdown was imposed in these areas, annu­al GDP would be redu­ced by 1 percentage point, the​ economis­ts say.

While it’s too early to assess the overa­ll cost of recent lo­ckdowns in the techn­ology hub of​ Shenzh­en and other manufac­turing centers, evid­ence of the blow to manufacturing and lo­gistics is already piling up.

At least 28 companies listed on mainland exchanges, including electronic compone­nt producers, petroc­hemical firms and en­vironment equipment suppliers, announced a suspension of bus­iness operations in March. While many di­dn’t disclose the di­rect impact, a few​ reported​ that the halted production lin­es contributed to ha­lf of their total re­venue.​

Yet, as theexperience of 2020 showed, factories can ramp up production once restrictions ease to​ quickly make up lost ground. Virus-shy consumers, however, can’t be turned back on quite so quickly.​

And that’s where the longer-term drag on the economy may stem from, Bloomberg reports, with fewer people taking holidays, dining out or catching a movie.​

Which may be why some are beginning to anticipate China will begin inching away from its strict Covid-zero strategy.​

Some point to the fact that recent lockdowns have sought to minimize the economic cost —​ in line with a shift in rhetoric from China’s top leaders.

For instance, the shutdown in Shenzhen halted Apple’s supplier Hon Hai Precision Industry, known as Foxconn, though it was allowed to partially resume last week even though the city was still barring residents from leaving home.

Others point to​ the planned relaxation of some anti-Covid measures in Hong Kong, which until recently was trying to ape China’s approach.

“Reopening will serve as a test case for mainland China, which likely OKed the plan and is eyeing a transition away from its own ‘Covid-zero’ approach,” Bloomberg Economics’s Chang Shu and Eric Zhu wrote in a report. “An overriding preference for stability, though, means any mainland policy shift will be gradual, likely starting with regional trials informed by lessons learned in part from Hong Kong’s experience.”

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