China’s noisy turn on Covid will not be an immediate solution | China

From zero tolerance to “let it rip”. Not only has China changed its mind on how to deal with covid, it has executed everyone’s mother U-turns In response to slowing growth and increasing civil unrest in strict lockdowns.

If Beijing expects an immediate economic boost from abandoning its strict controls, it is mistaken. There will be a growth dividend from the policy shift, but the condition of the world’s second-largest economy will get worse before it gets better, and it will come at least next spring before the easing of restrictions starts to pay for it.

In the meantime, China They could face a tech recession this winter as workers stay home for fear of infection, leaving factories understaffed. Almost every country that has shifted away from lockdowns to a “we have to learn to live with Covid” approach has suffered an exodus of surging infections, and China is following the same pattern.

People change their behavior either because they have the virus or because they think they might get infected. Subway use in Beijing, where the increase in cases has been most sharp, is 20% of pre-pandemic levels.

Looking at China’s position as such The largest exporter in the world Of the goods, the effects are obvious. Companies will find themselves facing a shortage of employees. Production levels will decline and supply chain bottlenecks will intensify, adding to inflationary pressure in developed countries such as the UK. Cost-of-living pressures will recede more slowly than they would otherwise.

“The mass hospitalizations are likely to trigger a new bout of fear for consumers and businesses and further constrain the Chinese economy, while the prospect of new supply chain highs could prolong the price pain you are feeling in the countries around the world.”

Mark Williams, chief economist in Asia for the advisory firm Capital economicsIt is estimated that China’s economy will contract by 2.5% this year and expand by 2% next year – a far cry from the double-digit annual growth rates achieved a decade ago.

“For the economy, reopening has been completely negative so far,” he says. “Activism has been discouraging for most of the past year because the fear of being forced into quarantine has kept people in their homes. Fear of quarantine has now given way to fear of contagion, and the economic outcome is even worse.”

If, as expected, infections peak within the next month or so, the experience of other countries is that it takes time for people to feel confident enough to resume their lives as normal. Activity will fully recover only in early spring.

Overall, analysts believe that this shift will lead to stronger Chinese growth and a recovery in global trade. “There is a lot of uncertainty about how much disruption an exit wave of infections will cause,” said David Rees, emerging markets expert at Schroders. “But ultimately, easing Covid restrictions will release the handbrake that has been holding back activity and allow for a better transfer of existing policy support.” “.

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