Bad scenario if China persists with Zero COVID
Recently, China for the first time imposed the strictest blockade order ever on the city of 25 million people Shanghai, which is considered the “financial heart” of the mainland.
Accordingly, from 5:00 am on March 28 to 5:00 am on April 1, a temporary blockade order will be applied to areas east and south of the Huangpu River. Then, from 3:00 a.m. on April 1 to 3:00 a.m. on April 5, the blockade order was implemented in the inner city districts west of the Huangpu River. People are asked to stay at home, while businesses, except those serving essential goods, will strictly adhere to restrictive measures during the blockade.
Although seen as a way for the government to pursue the Zero COVID strategy, the decision is expected to cause serious damage to the Chinese economy. Bloomberg newspaper quoted experts from the University of Hong Kong (China) predicting that China’s strict blockade measures could cost the country’s economy at least $ 46 billion per month. The number could be even larger considering the effects of inflation and the addition of major cities to lockdowns.
China’s strict blockade.
According to Bloomberg, $46 billion is the minimum damage estimate made by experts based on the assumption that cities are imposing strict blockades that contribute about 20% of China’s GDP. The level of damage will double if these localities tighten partial blockade similar to Shanghai.
Professor Zheng Michael Song and his research team analyzed the location data of nearly 2 million trucks operating across China. The movement of these vehicles is said to be quite correlated with local economic activities.
He said the blockade being imposed in Shanghai alone could reduce China’s real GDP by 4%. If all four of China’s largest cities were to close together, the national GDP, after adjusting for inflation, would decrease by up to 12% during the blockade. In the worst-case scenario, when all cities impose a blockade for a month, the GDP of this country could decrease by as much as 53% during that period.
Currently, China is fighting a super-infection wave of the Omicron variant. Outbreaks have pushed the number of new infections per day nationwide to pass the 6,000 mark this week. Goldman Sachs estimates that the areas that impose lockdowns, with a moderate to high risk of outbreaks, total about 33% of China’s GDP.
China’s economy may suffer heavy losses because of Zero COVID.
China has imposed more lockdowns since 2020. The restrictive measures are all region-specific rather than city-wide, and only cost local economic activities about 30 percent of the time. % compared to the previous decrease of more than 60%. In addition, the blockades have also become shorter, lasting an average of 21 days compared to 2 and a half months in Wuhan city.
“It’s a sign that the Chinese government has learned from experience and adjusted its policy accordingly,” Professor Song said.
Bloomberg believes that the entire Chinese economy can still grow, even if the blockade has a negative impact on many localities, because other regions across the country can still maintain or even increase production. quantity. However, the overall growth target will then become more difficult if the impact of the blockades grows larger.
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