China battles economic downturn, sticks to costly ‘zero COVID’

BEIJING (AP) — China’s leaders are struggling to reverse an economic downturn without giving up anti-virus tactics that shut down Shanghai and other cities, adding to challenges for President Xi Jinping as he tries to extend his time in power. .

The ruling Communist Party has declared that its “zero-COVID” goal of preventing all infections takes precedence over the economy. It is a decision with global implications and comes despite warnings from experts, including the head of the World Health Organization, that the goal could be unattainable.

“We don’t think it’s sustainable,” WHO Director-General Tedros Adhanom Ghebreyesus said on Tuesday.

China kept infection numbers low until early this year with a strategy that locked down cities but involved skyrocketing costs. Beijing has switched to “dynamic cleaning” that seals off buildings or neighborhoods if infections are found. But with thousands of new cases of the highly infectious omicron variant reported every day, that keeps most of Shanghai’s 25 million people at home. Large parts of Beijing and other cities with tens of millions of people are also on lockdown.

That is disrupting manufacturing and hampering the global flow of goods, from smartphones to iron ore, raising inflation risks in the United States and Europe. Consumer spending is weak, cooling Chinese demand for imports.

The ruling party is promising tax refunds and other aid to struggling entrepreneurs that Beijing is counting on to create jobs and wealth. Premier Li Keqiang, the No. 2 leader, warned last week that the employment situation is “complex and bleak.”

On Wednesday, Li called on officials during a cabinet meeting to focus spending and credit policies on preventing job losses, state television and the official Xinhua News Agency reported. They did not give details of possible new initiatives.

Despite promises of aid, forecasters say economic growth in the current quarter will fall to 1.8% from a year earlier from an anemic 4.8% last quarter. Full-year growth is forecast as low as 3.8%, below the ruling party’s official target of 5.5% and less than half of 2021’s 8.1% expansion.

“The Chinese government is willing to make some sacrifices in the short-term economy to trade long-term growth,” said Ting Lu, an economist at Nomura. However, he said, “achieving ‘zero COVID’ is quite challenging, because omicron is more infectious.”

A Foreign Ministry spokesman on Wednesday defended China’s approach as realistic.

China’s strategy is “not to seek zero infection, but to control the epidemic situation in the shortest possible time at the lowest social cost,” Zhao Lijian said. “The vast majority of people in most areas of China live and work normally.”

Censors removed complaints about food shortages and other hardships and videos posted online showing people in Shanghai and other areas arguing with police.

Public frustration and economic losses are adding to Xi’s complications ahead of a ruling party congress in October or November in which he is expected to try to break with tradition and win a third five-year term as leader.

Xi, the most dominant Chinese leader since at least the 1980s, is expected to get another term. But experts say rivals could gain leverage to cut back on his powers. Supporters of market economic reforms also want to reverse policies favoring state industry and tighter control of the private sector, China’s economic engine.

Arguing over the cost of antivirus strategies provides “an opportunity for their factional opponents” with “deeper ties to business sectors,” Diana Choyleva of Enodo Economics said in a report. “They are more in tune than Xi and his supporters with the impact of Covid-0 on the economy and on middle-class citizens.”

In a sign private industry is weakening, 4.4 million businesses closed last year while only 1.3 million new businesses opened, down from 13.8 million in 2019, according to Choyleva.

COVID restrictions have closed factories or suspended access to manufacturing hubs for automobiles, electronics and other industries, including Changchun and Jilin in the northeast and Guangzhou and Shenzhen in the south.

In the central city of Zhenzhou, the Xiao Nan Guo restaurant closed on May 4 but still pays its 100-strong workforce, according to an employee, Wang Huiqin. She said business was down 40% before restaurants in the city of 13 million people were told to stop providing dine-in service.

“If the situation lasts a few weeks, the company can handle it,” Wang said. “If it lasts longer, there will be problems because the costs will be too much.”

In Shanghai, most businesses have been closed since the end of March at an estimated cost of tens of billions of dollars a month in lost activity.

The volume of cargo in the port of Shanghai, the busiest in the world, has decreased by 30%. Economists say foreign customers are looking for non-Chinese suppliers who are more likely to deliver but charge more.

“This will further increase the risk of stagflation this year” in Western economies, said Tommy Wu of Oxford Economics, referring to a scenario of rising prices and falling economic activity.

Export growth in April sank to 3.7% from a year earlier from 15.7% in March. Imports increased by 0.7%, in line with the previous month’s growth of below 1%.

China was the only major economy to grow in 2020 after Beijing closed factories, stores and offices across the country to combat the virus. The ruling party declared victory after a few months and reopened the economy.

Last year, the Xi government returned to long-term plans that include trying to reduce excessive real estate debt. That caused a drop in construction and home sales in mid-2021.

In a sign of the intensity of the economic pain, Beijing is facing appeals from foreign companies that generally avoid questioning official policy for fear of retaliation.

The American Chamber of Commerce in China says its members want a “more optimal balance” between disease prevention and business.

More than half of the 121 companies that responded to a survey from April 29 to May 5 delayed or reduced investment, according to the chamber.

“Members see no light at the end of the tunnel,” chamber president Colm Rafferty said in a statement.

At a May 5 meeting, party leaders appeared to reject such calls and the “living with the virus” stance taken by other governments.

The relaxation of virus control measures will lead to “large-scale infections, serious illnesses and deaths” and will “severely affect” the economy, they said in a statement. Closing the debate, he said that “all sectors of society” should “unify their thoughts and actions” with party leaders.

Rather than give up their growth goal to pursue “COVID zero,” party leaders “want both,” Macquarie Group’s Larry Hu and Xinyu Ji said in a report.

“COVID zero at the cost of rising unemployment is a tough sell for China’s top leaders, especially in a year of great political importance,” they wrote.

This week, the Ministry of Industry asked local governments to help entrepreneurs pay rent, utilities and other expenses. He warned that “the production situation is not optimistic.”

“We urgently need to take more effective measures,” a ministry statement said.

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AP researcher Yu Bing contributed.

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