China’s zero-cove policy destroys global hopes for a rapid economic recovery

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The sharp recession in China’s economy due to the strict zero-covid rule and Beijing’s departure from traditional dependence on external demand have raised doubts about how much the country will contribute to world trade and investment in the future.

Thanks to bumper exports and factory production, China has recovered a significantly faster recovery from its initial epidemic recession, with analysts expecting that the current recession will be harder to overcome than seen in early 2020.

For Beijing’s leaders concerned about rising unemployment, Glomer’s approach not only presents challenges, but also allows foreign businesses to rely on China to resume its level of engagement with the rest of the world before the epidemic.

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Calculations based on estimates from the International Monetary Fund show that China’s expected average annual contribution to global economic growth by 2027 is about 29%. While this is a significant addition, it contrasts with the years following the 2008 global financial crisis when it averaged close to 40%.

Raymond Young, ANZ’s chief economist for Greater China, says Beijing’s economic policies have in recent years shifted from restoring its past model to domestic solutions and reforms that have focused on greater engagement with the world.

“Successful implementation of these can pave the way for sustainable growth in the long run,” Young wrote in a note. “However, the risk of failing to achieve a similar growth rate is high. If MNCs (multinationals) begin withdrawing their coastal presence, the process of economic integration may end sooner than expected. “

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China’s export growth slowed to single digits in April, the weakest since the onset of the epidemic, when imports changed sharply as the Covid-19 control plant shut down production and demand fell.

Authorities are expected to pass a precautionary measure around COVID ahead of an important Communist Party meeting later this year.

As a sign of that caution, China last week relinquished its hosting rights to next year’s Asian Cup football final due to the Covid concerns.

Pekingian Liu, a Chinese economist at Singapore’s NatWest Markets, said that in the face of a choice, Beijing would probably prioritize winning the tough fight against Kovid and its massive debt above its 2022 growth target of 5.5%, which many analysts see as ambitious.

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“Broadly speaking, early 2018 saw a long-term transition to a more domestic-driven economy, encouraging the services sector and upgrading the production supply chain, (and) moving away from debt-driven stimulus and growth,” Liu said.

He said a broad and sustainable slowdown in investment would weigh on demand, which would contribute to a deeper recession in global growth.

Immediate concern

Beijing has defended its policies and mitigated the effects of the global wave. Part of an opinion in the state-owned Global Times last week stated that Zero-Covid was the most appropriate strategy for fighting the virus and stabilizing the economy and was expected to continue its strong contribution to global growth.

Others agree broadly – Brian Culton, chief economist at Fitch Ratings, acknowledges the barriers to zero-covid but does not see it as a more serious blow to global growth.

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“Whatever happens, the rest of the world’s dependence on Chinese production has increased in the last few years, so I do not see any reduction in China’s influence in the global cycle in the near term,” Kulton told Reuters. .

For now, however, Chinese foreign businesses are becoming vocal about the deteriorating operating conditions.

Under the zero-quad policy, Chinese citizens enjoyed a long period of relative openness and independence within the boundaries of the domestic economy, but were tightly closed from the rest of the world.

However, the recent domestic outbreak has not only locked down large parts of the manufacturing sector, but has also added to the global supply crunch, doubling restrictions on restricting the movement of people inside and outside the country.

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Although travel bans are easing in most parts of the world as countries try to “live with COVID”, China said last week that it would strictly restrict unnecessary foreign travel by its citizens, continuing a functional stalemate that has continued in the past. Two years.

The American Chamber of Commerce in China warned on Tuesday that stricter COVID-19 controls would hamper foreign investment in the country for several years due to travel restrictions on pipelines for projects.

A survey by the German Chambers of Industry and Commerce (DIHK) last week found that 47% of German companies in China are reconsidering their activities there, and one in eight companies is even considering leaving the country.

“It usually takes a few years to establish oneself here and considering the size of the country, the harder it is to make a transfer, the more surprising the survey results,” said Volker Trier, head of foreign trade with the German chambers.

(Reporting by Stella Kew in Beijing, Tom Westbrook in Singapore and Christian Kramer in Berlin; Additional reporting by Mark John and Howard Snyder; Writing by Sam Holmes; Editing by Kim Kogel)

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