in the past two weeks, Eight megacities have gone into full or partial lockdown. Together, 127 million people live in these important centers of manufacturing and transportation.
At least 74 cities across the country have closed since late August, affecting more than 313 million residents, according to CNN calculations based on government statistics. Goldman Sachs estimated last week that lockdown-affected cities account for his 35% of China’s gross domestic product (GDP).
Recent restrictions Despite the damage, it demonstrates China’s uncompromising commitment to eradicating the virus with the strictest control measures.
“Beijing appears willing to absorb the economic and social costs resulting from its zero-coronavirus policy,” said Craig Singleton, senior fellow in China. “And the hospitalizations and deaths associated with it represent an even greater threat to the government’s legitimacy.” at the Foundation for Defense of Democracy, a DC-based think tank.
“There may be a softening of certain policies in early 2023 after Xi Jinping’s political future is assured, but a major policy shift before the Congress is unlikely,” Singleton said.
“Yet the Communist Party lacks both the time and the available policy tools to address many of the most pressing systemic threats to the Chinese economy,” he added.
Raymond Yang, chief economist for Greater China at ANZ Research, said the economy will continue to deteriorate in the coming months. As the party convention draws nearer, local governments will “be more inclined to prioritize zero coronavirus and stem the outbreak of the virus,” he added.
The tightening of coronavirus restrictions will hit consumption and investment during China’s ‘Golden September, Silver October’ period. home sale.
Meanwhile, a sharp slowdown in the global economy doesn’t bode well for China’s growth either, Yeung said. Weakening demand from the US and European markets will weigh on Chinese exports.
He now expects China’s GDP to grow by just 3% this year, well below Beijing’s official target of 5.5%. Other analysts are even more bearish. Nomura lowered his forecast to 2.7% this week.
No Exit Until Early 2023?
More than two years after the pandemic, Beijing is still sticking to its drastic approach to the virus, including mandatory quarantines, mass mandatory testing and snap lockdowns.
But with the highly contagious Omicron variant weakening the effectiveness of the zero-Covid policy, premature declarations of victory are back to haunt him.
But giving up coronavirus-zero doesn’t seem like an option for Xi Jinping, who has focused more on defeating the virus than saving the economy this year.
“Beijing has sought to assert its zero-Covid policy as a testament to the party’s strength and, by extension, Xi Jinping’s leadership,” Singleton said.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said the change in approach may not take place until next year, and even then it will most likely be very gradual.
“It’s going to be a long process,” he said, adding that Hong Kong — Where visitor quarantine and inspection rules have recently been relaxed — It could be “a key leading indicator of what happens on the mainland.”
another disastrous quarter
The government is trying to achieve the “best possible outcome” for economic growth and jobs, but “balancing the two goals is very difficult,” said ANZ’s Yeung.
China’s manufacturing contracted for the first time in three months in August, while service sector growth slowed, according to a public-private survey released last week.
“The situation is not pretty as China continues to battle the most widespread wave of Covid infections to date,” Nomura analysts said in a research report on Tuesday.
work and property issues
China’s job market has deteriorated over the past few months. The latest data show that the unemployment rate among 16-24 year olds hit a record high of 19.9% in July, breaking records for the fourth straight month.
In other words, there are currently about 21 million unemployed young people living in cities and towns in China. Local unemployment rates are not included in official figures.
ANZ’s Yeung said “the issue of greatest concern is employment”, adding that youth unemployment could reach 20% or more.
Other economists say more jobs are likely to be lost this year as social distancing measures hit the catering and retail industries and put pressure on manufacturers.
The worsening real estate market downturn is another big drag. The sector, which accounts for his 30% of China’s GDP, has been crippled since 2020 by the government’s campaign to curb reckless borrowing and curb speculative trading. Real estate prices are falling, and so are sales of new homes.
The zero Covid rule could be eased in 2023, but post-congress housing policies may not change much.
“Over the next two years, the economy is unlikely to repeat its previous high growth of 5.5% or 6%,” Yeung said.
CNN’s Beijing bureau contributed to this report.