Here We Go Again - China’s Zero Covid Policy

From March the first till May the first, there have been almost 740,000 new cases in mainland China with nearly 539 deaths. However, the spread seems to be decreasing as the seven moving averages have fallen from a yearly high of 30k to 22k (May the third). According to Reuters, 46 Chinese cities are in full or partial lockdown, which contributes to around $16.1 trillion, leading to detrimental economic impact. Furthermore, Shanghai lockdowns risk global supply chains, which are destructive, especially with rising inflation rates due to fiscal policy, previous supply disruption, and increasing energy prices.

 

This has significantly impacted local and global industrial corporations worldwide, retailers, and the service industry. For instance, movie office box revenue in china dropped by 23%. And “The benchmark Shanghai Composite Index (.SSEC) has slumped nearly 9% so far in April, heading for its biggest monthly decline in six years.” So now the question is, how bad will the drastic measures of China’s zero covid policy be on the world economy?

 

China is considered one of the global exporters, accounting for 12% of international trading. Due to covid restriction which slowed down mobility, and inactive factories and warehouses. Bloomberg reports that imported goods are being held over 11 days on average before they are taken by trucks and cleared in warehouses; this has led to a $22 trillion trade in global goods facing months of severe disruption. Of course, even if covid-19 cases in china decrease and the Chinese government starts to relieve restrictions. It still means that the waiting list will be exceptionally long as accumulated shipments are being cleared first. It’s claimed that it will greatly impact the global economy for 2022, slowing down economic growth. This comes at the wrong time as the IMF has decreased the global GDP growth forecast by 1% due to the looming war.

 

However, although economic forecasts seem extremely pessimistic, some even cite and predict a recession by the end of the year. This is extremely unlikely unless covid cases continue spreading, which according to recent trends, is reducing; in addition, almost 86% of china’s population is completely vaccinated, and death numbers are nowhere near the 2020 outbreak, which reached nearly 200 daily deaths. In addition, the Chinese government seem determined not to shut down factories as many factories have been given exemptions (666 corporations in shanghai, where the spread is significant).

 

In conclusion, such a zero-profit policy will, of course, lead to a reduction in profits consequently reducing GDP growth. However, a pessimistic outlook stating that such disruption will cause a recession is hard to support as it’s too early to tell; we just have to wait and see how covid-19 in china and the war in Russia will play out.