China’s zero-virus strategy hurts consumer spending more than manufacturing

Residents line up for mass Covid-19 testing after the city of Tianjin reported 20 news cases over the weekend, Jan. 9, 2022.

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BEIJING — Economists say China’s zero-pandemic policy to contain the outbreak has affected consumers more than factories.

Analysts are turning cautious on the Chinese economy as local authorities impose more travel restrictions and some lockdowns to contain the omicron Covid variant. Goldman Sachs cuts growth forecast Tuesday of the year.

But analysts are concerned about Consumer spending in China is already sluggish.

Lu Ting, chief China economist at Nomura, said in a note on Monday that Omicron’s high transmission rate means the costs of China’s zero-coronavirus policy are rising, while the benefits are falling. In the hospitality industry, where business has yet to return to pre-pandemic levels, industry workers may be draining their savings and spending less, he noted.

Not on the cost list is manufacturing.

On the positive side, “the zero-coronavirus strategy, coupled with Beijing’s ability to mobilize all resources across the country, arguably has brought significant benefits to its people and economy, with an official death toll of just four since mid-April 2020, factories and factories. Fires all cylinders, an impressive 31.0% [year-on-year] Export growth in the first 11 months of this year,” said Nomura’s Lu.

Since the pandemic began in early 2020, Chinese policy has used quarantines and travel restrictions — both within cities and with other countries — to control the outbreak. After contracting in the first quarter, the country was the only major economy to grow that year.

According to analysis by Wang Dan, chief economist at Hang Seng China in Shanghai, hotels and restaurants will be the most affected by the zero-coronavirus policy. Her research found that manufacturing and agriculture were least affected and contributed the most to growth.

Wang’s analysis compared GDP data for 2020 and 2021 with the four-year average of China’s annual GDP growth rate from 2016 to 2019 before the pandemic.

“By containing the spread of the new coronavirus, China [has] Being able to make sure all the nodes in the supply chain are functioning properly, so real agricultural and industrial output … are above trend,” she said in a phone interview last week.

Industrial production rose 2.8% in 2020 and 10.1% year-on-year in the first 11 months of 2021. Chinese factory activity unexpectedly increased in December, According to an official measure called the Purchasing Managers Index.

Why factories are less affected

Su expects that different approaches by local governments to implement zero-epidemic policies will lead to different economic performances across provinces this year.

“For example in Shanghai, when there is a positive case, they just block the area or the street,” she said. “But for governments with limited medical resources,[s], they tend to block the entire city at once, as happened in Xi’an. “

Xi’an in central China is One of the many industrial centers in the country. The city of 13 million has been under lockdown since late December, prompting Citi’s chief China economist Liu Ligang to forecast that the year-on-year growth rate for industrial production in December may slow to 3.5% in December from 3.8% in November.

But Liu expects China’s trade growth “to remain strong” despite the high base of the past two years.

More than half of China’s exports come from provinces such as Guangdong, Jiangsu and Zhejiang, which are located on the southern or southeastern coast near Shanghai. The less developed areas are located in the central and western regions of China with a population of 1.4 billion.

China’s export growth remains resilient throughout 2021, Despite repeated warnings of slowing overseas demand.

The risk this time is that factories in other countries may be able to operate if their governments decide to adopt a coexistence strategy with the new coronavirus.

China’s “zero coronavirus” policy on the one hand can ensure retail activity, industrial activity can continue, but if the world succeeds in “living with people” [the] Gary Ng, Asia-Pacific economist at Natixis, said China could face the risk of a growth divergence between the two.

political risk

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The omicron Covid variant that emerged in late November is a highly mutated coronavirus that is highly transmissible.

Preliminary reports suggest that omicron may be less lethal than other Covid strains.But the World Health Organization said on Tuesday omicron can cause life-threatening illnesses in the unvaccinated, the elderly, and those with underlying medical conditions.

Mainland China reported 124 new locally transmitted cases on Wednesday, bringing the total number of existing cases to 3,460 and no new deaths. New cases in Xi’an fell to six from 63 a week earlier. In the United States, An average of 1,700 people die from the coronavirus every day, A record 132,646 people were hospitalized as of Monday, Reuters reported.