Tue, May 03, 2022 page8

• China lockdowns cripple economy

  • By Daniel Jia
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  China is back in the mode of dictating its economic activities with a GDP growth target set at the beginning of each year, and the target for this year is 5.5 percent.

  This practice was interrupted only in one exceptional year, 2020, when the country was hit hard by the countermeasures implemented following the outbreak of the COVID-19 pandemic. Back then, half of the country was locked down, starting from Wuhan, a megacity in south-central China and the birthplace of the pandemic, while manufacturing and consumption activities were largely put on hold. That year, China registered a record-low economic growth, 2.3 percent.

  After an enviable 8.1 percent GDP expansion last year, driven by strong exports of medical supplies following an exemplary smoothing out of numerous COVID-19 waves that had stricken a large part of the world, China is now facing a much tougher year.

  The country was first in half-idle mode while readying itself for February’s Winter Olympics. Just as China was about to jump-start its economy after saying goodbye to the Olympic torch, its land-bound belt-and-road route was interrupted by the war in Ukraine, initiated by its best partner, Russia, which has so far crippled China’s export capacity at least by one-quarter.

  While the Chinese leadership was calculating future gains from the war by helping in post-war rebuilding, the Omicron variant of SARS-CoV-2 lashed out at the country, and hard. As a result of the pandemic’s resurgence, China has been shutting down its economic engines one after another after the January lifting of the month-long COVID-19 lockdown in Xian, the largest economic and transport hub in the northwestern region.

  That Shanghai is now the epicenter of China’s iron-fisted COVID-19 lockdown measures by no means suggests that it is the only affected city. Also under lockdown or semi-lockdown measures are dozens of lesser known but not insignificant cities across the country.

  For instance, Shenyang, an industrial center with 9 million residents, has been in a complete lockdown since late March. Other cities in the same league include Baotou, the largest city of Inner Mongolia, with 2 million residents; Tangshan, an essential industrial base, with 3.6 million residents; Hangzhou, a center of innovation and manufacturing, with 10 million residents; and Shenzhen, a model of China’s economic growth for the past 40 years, with 12 million residents. The list of cities under lockdown grows by the day.

  The world outside China knows little about the conditions in these cities. This is not only because of their general obscurity, but more attributable to the tight information control measures imposed by local officials, as well as nationwide media censorship mechanisms.

  Shanghai’s lockdown has received international media coverage partly because of the surreal situation in a world-famous city, but also because of the large number of foreign residents and tech-savvy locals who managed to bypass the great information firewall to send first-hand experiences to the outside world.

  So, how badly is China’s COVID-19 lockdown affecting its economy?

  The answer is twofold. China’s official economic data show a range of manageable difficulties. The economy expanded 4.8 percent in the first quarter, with the growth of industrial production greater than 5 percent, in spite of a decline in consumer spending and a 6 percent unemployment rate. The central government has shown confidence in meeting this year’s GDP growth target.

  However, business activities and the lives of ordinary people are quite different behind these numbers. So far, China’s COVID-19 lockdown policies have affected one-quarter of China’s population and 40 percent of its economy.

  In the middle of last month, China put more than 600 manufacturers on its “white list,” giving them the green light to resume production. However, the green light is of no help. Those factories discovered that more than half of their production workforce is still ineligible to work under the strict lockdown rules.

  Small businesses and ordinary city dwellers are not faring well, either. Businesses are closed and personal income is shrinking. While expenses remain high and government subsidies are being discussed, unexpected extra costs — such as lodging and food expenses during forced quarantine — keep showing up on people’s bills.

  Even farmers are feeling the pain, as widespread lockdowns are reaching remote countryside areas. Countless townships and villages have even imposed additional radical controls. A recent image posted online shows a stamped agricultural permit issued by a local authority granting the permit holder the “right” to work on his own farm.

  Foreign investors are leaving with their capital and their talent. Local businesses are on their deathbeds, if not buried yet, and consumers are exhausting their savings to stay afloat.

  Even if lockdown policies are reversed tomorrow, it is doubtful that the crippled economy could quickly regain its vigor. It is not a matter of how hard it is to reignite business and consumer confidence. It is that they have already lost most, if not all, of their capacity for revival.

  What is surprising is the consensus estimate for China’s economic growth this year, provided in March by 30 economists spanning the globe. The average number ranged from 4.3 percent to 5.9 percent, echoing China’s official growth target.

  History has shown that analysis from Main Street economists is often accurate when conditions are favorable, but can be terribly off target in adverse situations. Investors of Luckin Coffee and Alibaba Group Holding would agree, after the two Chinese companies inflicted heavy losses on US investors who relied on positive analyses from economists.

  To gauge China’s economic viability, the world outside its borders often relies on economic numbers given by its government, despite persistent suspicion of those numbers’ authenticity. China will, with no doubt, meet its GDP growth target for this year. Whether the reported growth reflects its actual economic growth is a completely different story.

  As Shanghai struggles to get back on its feet, Beijing residents are now panicking in a COVID-19 lockdown after dozens of confirmed cases prompted an order of urgent testing throughout the capital.

  Daniel Jia is founder of the consulting firm DJ LLC Integral Services in Spain.
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