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.”