Fri, Apr 22, 2022 page10

• ‘Zero COVID’ in China to plunge GDP ‘below 4%’

  UNDERESTIMATED: Nomura Holdings analysts said that more economists would cut their forecasts for China after attentions shifts from Russia and the US Fed

  • Bloomberg
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  Nomura Holdings Inc cut its forecast for China’s economic growth rate to 3.9 percent as the country’s insistence on sticking with a “zero COVID” policy disrupts the economy more severely than monetary policy can provide support.

  The estimate was lowered from 4.3 percent due to “rapidly” worsening high-frequency data for this month and logistics problems, as a growing number of cities fully or partially lock down to contain COVID-19.

  Beijing has shown no sign of moving away from its “zero COVID” strategy, Nomura’s economists, including Lu Ting (陸挺), wrote in a note yesterday.

  

  A drone carrying a QR code flies over trucks lining up to enter a highway toll station near Huzhou, China, on Wednesday so that drivers could scan the health code amid a COVID-19 outbreak.

  Photo: Reuters

  If realized, the 3.9 percent expansion rate for this year would mark China’s worst annual performance since 1990, excluding 2020 when the COVID-19 pandemic battered the economy and pushed the growth rate to 2.2 percent.

  Nomura’s forecast for this year is more bearish than the 5 percent consensus in a Bloomberg survey of economists and far lower than the government’s target of about 5.5 percent.

  Nomura expects China to provide more policy support this year by cutting the reserve requirement ratio by 25 basis points, along with a policy interest rate cut of 10 basis points, Lu told Bloomberg TV yesterday.

  However, the economic recovery would still be hampered unless China modifies its strict approach to curbing infections, he added.

  “First and foremost, we still need to focus on Omicron [variant of SARS-CoV-2] and those ‘zero COVID’ strategy policies,” Lu said. “When they ease on that, I believe those other policies will be much more effective.”

  The government has been trying to stabilize the supply chain and inject liquidity through various measures intended to help the economy.

  However, there are doubts about the effectiveness of such policies as Chinese President Xi Jinping (習近平) has made clear he is sticking with “zero COVID,” defending the policy again at the Boao Forum for Asia yesterday.

  Nomura also cut its growth forecast for the second quarter to 1.8 percent from 3.4 percent, although it added a “much higher risk on the downside than on the upside” for that quarter and the second half of the year.

  “We believe global markets still underestimate China’s slowdown because much attention has been focused on the Russian-Ukraine conflict and US Federal Reserve rate hikes,” the Nomura analysts wrote, adding that they expect more economists to cut their predictions in the coming weeks.

  Investors are not buying the government’s bullish rhetoric and promises of support for the economy.

  The benchmark CSI 300 Index this year has so far tumbled about 18 percent and remains in a bear market while bond yields have risen, underscoring concerns that Beijing might not be doing enough to arrest slowing growth. The Chinese currency also slipped to its weakest level in six months.

  Achieving “zero COVID” is now “way more costly and difficult,” the Nomura analysts wrote, since Omicron is much more contagious than previous variants.

  The analysts said that the epicenter of the Omicron wave is the Yangtze River Delta, the economic, financial and logistics center of China, containing some of the world’s largest factories and ports.

  Consumers and private firms are also “worn out” after years of living through the pandemic, and might be forced to reduce spending due to drying-up savings, the economists said.

  To make things worse, China’s export growth is likely to decline as other nations fully reopen, while foreign direct investment into the country might drop given the strict restrictions on travel, production and logistics, they added.

  Although conventional policies such as credit easing might help, the “real growth bottlenecks remain,” the Nomura analysts said. “Adjustments to the ‘zero COVID’ strategy are key to a growth recovery in the coming months.”
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