The toll of China’s unwavering approach to combating Covid has rippled through the world’s second-largest economy for months: youth unemployment is at a record 20 percent, corporate profits have slumped, and economic growth has fallen below Beijing’s own forecasts.
The economic suffering has intensified pressure to ease pandemic restrictions to save the faltering economy and restore some semblance of normal life. frustration with the government Covid Zero Tolerance Strategywhich failed to prevent a huge jump in cases, escalated over the weekend as residents grew weary of unexpected lockdowns, extended quarantines and mass testing. Protests broke out. Smaller, sporadic demonstrations continued on Monday.
The current Covid outbreak, and most prevalent Since the beginning of the epidemic in 2020, Chinese President Xi Jinping has been put in a bind. He refused to budge on the government’s tough approach to Covid. If he eases restrictions and infections rise dramatically, there is a risk of mass infections and an overwhelmed healthcare system. But keeping existing policies in place and limiting infections with a broad lockdown would do more damage to an already slowing economy.
“The government doesn’t have good options at this point,” said Mark Williams, chief Asia economist at Capital Economics, a research firm. “Whatever they do, it’s hard to see how there won’t be major restrictions imposed in large parts of the country, which will have a significant impact on weakening the economy.”
More than 80 cities in China are now battling infections compared with 50 in the spring, when a smaller wave of infections led to an eight-week lockdown in Shanghai and put the economy into its slowest pace of annual growth in decades. These cities account for half of China’s economic activity and ship 90 percent of its exports, according to Capital Economics.
Earlier this month, China announced plans to Relax some pandemic policies, sparking speculation that it was the beginning of a transition to phase out the “zero Covid” policy, much to the delight of investors who sent shares of Chinese companies soaring. But as the number of infections soared, the government went back to familiar evidence and stuck to what it said all along: China is trying to stamp out Covid, not learning to live with it.
in A series of editorials in state media Starting Sunday, Beijing said China still needed to “maintain a strategic focus” in combating Covid, but urged officials across the country to avoid extreme measures such as blocking fire exits or blocking group doors during quarantine. He stressed the need for local officials to adhere to policy amendments aimed at “improving” existing Covid policies and reducing disruptions to individuals and businesses.
However, authorities Monday night deployed additional security measures to discourage another night of protests.
The growing unrest threatened to jeopardize China’s hard-won reputation as the factory land of the world. Last week, workers resented unpaid Covid bonuses and poor quarantine protocols They rioted and clashed with the police In a Chinese factory where the Taiwanese contract firm Foxconn produces more than half of the world’s iPhones.
Andrew Fennell, an analyst who oversees the Chinese government’s credit ratings at Fitch, said the country’s hawkish approach has “severely affected the economy and heightened social tensions.” He said he expects Beijing to ease the most restrictive measures under the zero-tolerance approach, such as citywide lockdowns, in 2023, but many restrictions will remain in place due to relatively low vaccination rates among China’s elderly.
In a reflection of those lower rates, China said on Tuesday it will increase efforts to vaccinate its older citizens, a move experts see as a crucial prelude to reopening the economy.
Goldman Sachs estimated in a note on Monday that there is a 30 percent chance that China will pass “zero Covid” before April as the central government is forced to “choose between more lockdowns and more Covid outbreaks.”
After the first outbreak of Covid in 2020, the Chinese economy has rebounded rapidly. While the rest of the world remains in lockdown, China’s hard-line approach to keeping the coronavirus in check has worked well and its economy is buzzing. In particular, exports have been a bright spot as Chinese factories make many of the products the rest of the world has bought online during isolation. Last year, the Chinese economy grew by an impressive 8 percent.
Right now, many of China’s largest trading partners are staring at a potential recession from runaway inflation, high interest rates, and the war in Ukraine. Locally, they are usually substrates Real estate High technology has fallen on hard times, and making more credit available to businesses hasn’t stimulated the economy.
For small businesses, the recent outbreak has already dented demand.
Cai Zhikang, a cake shop owner in Shenzhen, said corporate customers, the main source of his business, have started canceling orders more frequently. He said a customer canceled a large corporate catering order of more than $500 on Monday, a day after residents of the southeastern Chinese city staged a protest there over some of the latest restrictions.
Mr Kay, 28, said each wave of infections has brought more austerity from corporate clients who have cut spending on employee treatments to maintain their budgets. He said he was also forced to close his shop for a month when Shenzhen restricted the park where he operated his shop. He added that there is no point in planning for the future anymore because everything depends on whether or not Covid spreads.
“If there is no Covid, I can definitely earn. When there is Covid, I cannot,” Mr. Cai said.
The effect also spread to major corporations. The decline in gross profits at Chinese industrial firms accelerated in October, according to the National Bureau of Statistics. profit in 41 industrial sectors in China decreased by 3 percent In the January-October period, it fell sharply compared with a decline of 2.3 percent in the January-September period, figures released on Sunday show.
China’s initial success in containing Covid began to unravel this year with the spread of the more infectious type Omicron. The government projected a modest growth of 5.5 percent for 2022 in March, several weeks before there was a sharp rise in infections. Shanghai is in lockdown And it led to a sharp halt in the economy. A series of subsequent, smaller outbreaks have continued to test the limits of China’s zero-tolerance strategy, putting the government’s economic growth goal out of reach.
On Monday, Japanese stockbroker Nomura cut its fourth-quarter economic growth forecast to 2.4 percent from a previous estimate of 2.8 percent, citing a “slow, painful and bumpy road to reopening.” It also cut its 2023 GDP forecast to an increase of 4 percent from the previous estimate of 4.3 percent.
The economic slowdown is already apparent to Emma Wang, 39, who owns a handbag and suitcase shop in a mall in Langzhong, a city in Sichuan province where there are few infections.
When she opened her store two years ago, the business was steady and profitable. But recently, people have started avoiding malls even though the city is not locked down. She is considering taking her business online to sell her inventory.
“In an epidemic, there are no customers,” Ms. Wang said. ‘It is difficult to sell even one bag.’
Adding to the mother-of-two’s problems is that her husband, who works in a food factory whose business has also been disrupted, has not been paid by his employer for a few months.
“We have mortgages and credit cards,” she said. “The situation is not getting better and it really bothers me.”
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