Why China will likely recover more slowly from the latest Covid shock
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One district in Shanghai banned its residents from returning to their apartments for virus testing, as it tries to revive businesses. A line is seen outside of a shopping center in this picture taken in another district on May 21st, 2022.
Xu Kaikia | Visual China Group | Getty Images
BEIJING — China’s economy won’t be snapping back quickly from the latest Covid outbreak, many economists predict.
They expect slow recovery.
China experienced a rebound from the first quarter’s contraction and began to grow the second quarter after the 2020 pandemic. China is facing an even more dangerous virus variant this year and weaker economic growth.
Shanghai was the worst affected by the latest Covid epidemic that broke out in March. About a week ago, the city announced plans to emerge from lockdown — and fully reopen by mid-June.
“For China, the main story here is we have seen the light at the end of the tunnel. The worst of supply chain dislocations in China from Covid lockdown looks to be over,” Robin Xing, Morgan Stanley’s chief China economist, said during a webinar Friday.
“But we also think that the road towards recovery will likely take a long and difficult journey,” Xing added.
It is a continuous process. fits and starts.A downtown Shanghai neighborhood is open for business on the weekends again banned residents from leaving their apartment complexes to conduct mass virus testing. More parts of the capital city of Beijing ordered people to work from home as the local daily case count rose — reaching 83 on Sunday, the highest for the city’s latest outbreak.
Case in point: German automaker Volkswagen,It has two factories in China, and Wednesday it said that the production facilities were operational. However, Covid Controls were disrupting supply chains.
Automaker stated that it couldn’t give a precise figure about production because the factories are jointly ventured with local partners.
The national Covid count is down, but pockets of new Covid cases from Beijing and southwest China are prompting stay-home orders. Mass testing has also been ordered. Freight volumes remain below normal.
Meng Lei (China equity strategist, UBS Securities), stated in a last week note that restrictions were being tightened in many regions and cities at the first signs of local cases.
Meng explained that the main problems in production resumption are identified as logistical disruptions and supply chain disruptions. He cited examples from Shanghai, Jilin (Xi’an), Xi’an, and Beijing. Therefore, work resumption should be slow and not happen overnight.
A policymaking cycle ‘interrupted’
Despite this year’s highly transmissible variant of the Omicron, the Chinese government continues to adhere to their strict “dynamic zero-Covid policy”.
According to Dan Wang (Chinese chief economist, Hang Seng Bank China), the “most important impact” of Covid’s resurgence was that it “interrupted the normal policymaking process.
According to her, the most recent wave of lockdowns and cases began after the central government published its own. annual economic plan at the “Two Sessions” parliamentary meeting in March.
In China’s heavily managed economy, this annual meeting is a critical part of a cycle for developing and implementing national policies — across departments and regions.
Wang stated that supply chain disruptions and poor consumption can be managed, but it is difficult to quickly get the policy back on track once it has been interrupted.
So many economic goals exist that it is difficult to make “a lot” of compromises between them all. [government]”Departments,” she stated. The policy process has become extremely slow, she said.
CNBC reached out to the information office of China’s State Council for clarification.
This year, politics is weighing heavily with elected officials ahead of the regular fall shuffle. Xi Jinping, the Chinese president, is likely to continue for a third term.
Half of the stimulus from 2020
Beijing had set goals for growth in GDP of around 5.5% at “Two Sessions”, March 1. This is a little more than the predicted growth of many. investment banks — which have repeatedly slashed their China growth estimatesCovid lockdowns continue.
Wang has a high estimate of 5.1%, as she believes that China will increase stimulation and loosen Covid control later this summer.
However, nearly two years after Shanghai was finally locked down, no major change has occurred by policymakers.
Morgan Stanley’s Xing reported that, in terms of fiscal policy or interest rates, government stimulation is about half the amount it was in the peak pandemic of 2020.
Except for the unemployment indicator, all other economic indicators are at or near their early 2020 levels.
The central government announced tax and fee reductions for small business, as well as lowering mortgage rates. The impact on large real estate sectors, such as the vast, may take some time.
Xing pointed out that, even without Covid’s assistance, a reduction in property market policies would still take at least three to six more months to have an impact on homebuying.
Others parts of China are just as humming
It’s possible, however that China’s growth could be faster than most people think.
“The silver lining is, the experiences from the past two years suggest that a Covid-induced recession tends to end quickly, especially with prompt and powerful policy responses,” Larry Hu, chief China economist at Macquarie, said in a note last week.
Much of China continues to work, even though additional viruses testing is required.
Around 80% of southern China’s manufacturing is now back to normal. Even though Shenzhen was the biggest city in the region, almost all local businesses were closed for one week in March. However, transporting products within a province via trucks is allowed. Klaus Zenkel (chair of the South China Chapter of the EU Chamber of Commerce in China) told CNBC that Covid cases in this region are very rare.
Members in the southern Guangdong province — a manufacturing hub — “are all busy, they all have work to do,” Zenkel said. To prevent prolonged shortages, Zenkel noted that warehouses were being kept fuller by businesses.
He said, “Unpredictability exists.” You don’t know when it will occur.
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