China’s “zero covid” policy threatens to derail the country’s economic progress goals, weighed down by supply chain problems, port delays and the lockdown in Shanghai, analysts said.
Growth in the world’s second-largest economy slowed in the second quarter of 2021 due to problems in the housing market and regulatory controls in certain sectors, which led authorities to set a 5.5% increase in Gross Domestic Product for 2022, the lowest target in decades.
But analysts told AFP that goal could be difficult to achieve due to confinement orders that paralyze production and affect consumption in several key cities across the country.
Experts from twelve financial institutions estimated average growth of 5% for the full year and 4.3% in the first quarter, slightly above the 4% recorded in the previous quarter. Official data for the first three months will be published on Monday.
“China’s economy got off to a good start in January and February with fewer energy constraints, a rebound in domestic demand… fiscal stimulus and resilient exports,” said Gene Ma, China research director for the Institute of International Finance.
But the increase in coronavirus infections in March and the lockdowns enacted “severely disrupted supply chains and industrial activities”, he adds.
Analysts predict the outbreak, particularly virulent in the economic capital Shanghai, will reverse gains from the start of the year.
Automakers warned this week of serious supply chain disruptions and the possibility of a complete production halt if the Shanghai lockdown continues.
Prime Minister Li Keqiang said this week that the state will step in to help sectors affected by the pandemic with tools such as cutting mandatory reserve rates for banks.
Other major cities affected by Covid outbreaks include the massive tech hub of Shenzhen in the south, which was completely closed for nearly a week in March.
“The impact on retail sales could be greater because catering – about 10% of retail sales – has been temporarily suspended in some provinces,” Goldman Sachs said in a recent report.
Economists predict that in April there will be greater consequences of the confinement that will hamper growth.
With infections in dozens of cities, Beijing reiterated its adherence to the “zero covid” strategy, which involves eradicating any outbreak with confinements and mass testing, isolation of positive cases and strong restrictions at borders.
This caused movement to be limited for nearly two weeks in Shanghai, the country’s financial capital, which reports tens of thousands of cases every day, most of them asymptomatic.
The city of 25 million is home to the world’s busiest cargo port. Operations continue, but restrictions on intercity travel and a lack of truck drivers make it difficult to move goods.
The flow of goods vehicles on the highways has “weakened significantly” since early April, says Capital Economics economist Julian Evans-Pritchard in a recent report.
Shanghai authorities have been criticized for allowing cases to rise and for failing to guarantee food supplies to the population.
“Shanghai is a lesson and local governments in other parts of China may become more sensitive to outbreaks,” Tommy Xie, head of China research at the OCBC bank, told AFP.
“If they want to confine, they will confine sooner or later,” which could lead to more disruptions in the short term, he added.
Controls in other coastal cities will remain tight, said Dan Wang, chief economist at Hang Seng Bank China.
“It’s not impossible for us to see dozens or more than 30 cities confined at the same time… the economic cost is very high,” he said.