BEIJING ( Associated Press) – China’s leaders are struggling to stave off an economic slowdown without abandoning the anti-virus strategy that has shut down Shanghai and other cities, adding to challenges for President Xi Jinping as he spends his time in power. trying to increase.
The ruling Communist Party has declared its “zero-Covid” goal of stopping all infections a priority over the economy. It is a decision with global implications and comes despite warnings from experts including the head of the World Health Organization that the target may be unachievable.
“We don’t think this is sustainable,” WHO Director-General Tedros Adhanom Ghebreyesus said on Tuesday.
China kept the number of infections down with a strategy to lock down cities until the beginning of this year, but entailed rising costs. Beijing has switched to “dynamic clearing” that seals off buildings or neighborhoods if infections are found. But with thousands of new cases reported every day of the highly contagious Omicron type, which keeps Shanghai’s 25 million people at home. Large parts of Beijing and other cities with a population of hundreds of millions are also closed.
It is disrupting manufacturing and hindering the global flow of goods from smartphones to iron ore, increasing inflation risks in the United States and Europe. Consumer spending is weak, cooling Chinese demand for imports.
The ruling party is promising tax refunds and other aid to struggling entrepreneurs, which Beijing counts on to create jobs and wealth. The No. 2 leader, Premier Li Keqiang, warned last week that the employment situation was “complicated and dire”.
During a cabinet meeting on Wednesday, Li called on officials to focus on spending and credit policies to prevent job losses, State TV and the official Xinhua News Agency reported. He did not give any details of possible new initiatives.
Despite promises of aid, forecasters say economic growth in the current quarter will be 1.8% lower than a year ago, from an anemic 4.8% in the previous quarter. Growth forecast for the full year is less than the ruling party’s official 5.5% target of 3.8% and less than half of the 2021 expansion of 8.1%.
“The Chinese government is willing to make some sacrifices on the economy in the short term in order to trade for long-term growth,” said Nomura economist Ting Lu. However, he added, “Achieving ‘zero COVID’ is quite challenging, as Omicron is more contagious.”
A foreign ministry spokesman on Wednesday defended China’s approach as realistic.
“China’s strategy is “not to pursue zero infections, but to control the epidemic situation at the least societal cost,” Zhao Lijian said. Huh.”
Complaints about food shortages and other hardships and videos posted online showing people in Shanghai and other areas arguing with police have been removed by censors.
Public frustration and economic losses add to complications for Xi ahead of the ruling party’s Congress in October or November, in which he is expected to try to break tradition and give himself a third five-year term as leader.
Xi, the most prominent Chinese leader since at least the 1980s, is still expected to secure another term. But experts say rivals can take advantage of their powers to tamp down. Supporters of market-style economic reforms also want to roll back policies that favor state industry and tighter controls on the private sector, China’s economic engine.
The “dispute over the cost of anti-virus strategies” gives an opening for her factional opponents with “deep ties to business sectors,” Diana Choyleva of Enodo Economics said in a report. “They are more attuned than Xi and his supporters to the zero-Covid impact on the economy and middle-class citizens.”
In a sign the private industry is weakening, 4.4 million companies closed last year, while only 1.3 million new enterprises opened, down from 13.8 million in 2019, according to Choyleva.
COVID restrictions have closed factories or suspended access to manufacturing centers for auto, electronics and other industries, including Changchun and Jilin in the northeast and Guangzhou and Shenzhen in the south.
In the central city of Zhengzhou, Xiao Nan Guo restaurant closed on May 4, but is still paying 100 of its workforce, according to Wang Huikin, an employee. She said business was down about 40% before asking restaurants in the city of 13 million people to stop providing dine-in service.
“If the situation lasts for a few weeks, the company can handle it,” Wang said. “If it goes on longer, there will be problems because the cost will be too high.”
In Shanghai, most businesses have closed since late March, with an estimated cost of tens of billions of dollars a month.
Cargo volume at the world’s busiest Port of Shanghai is down 30%. Economists say foreign customers are looking for non-Chinese suppliers, who may be more likely to deliver but may charge higher.
“It will further increase the risk of stagflation this year”, said Tommy Wu of Oxford Economics, referring to the scenario of rising prices and falling economic activity.
Export growth in April fell to 3.7% in March from 15.7% a year ago. Imports grew by 0.7%, in line with growth of below 1% from the previous month.
China was the only major economy in 2020 after Beijing closed factories, shops and offices across the country to fight the virus. The ruling party declared victory after a few months and reopened the economy.
Last year, Xi’s government shifted back to long-range plans, including trying to reduce excessive real estate debt. This led to a decline in construction and housing sales in mid-2021.
In a sign of the intensity of the economic pain, Beijing faces appeals from foreign companies that generally refrain from questioning official policy for fear of retaliation.
The American Chamber of Commerce in China says its members want a “more optimal balance” between disease prevention and trade.
According to the chamber, more than half of the 121 companies that responded to the survey from April 29 to May 5 have delayed or decreased investments.
“The members do not see any light at the end of the tunnel,” Chambers President Colm Rafferty said in a statement.
At the May 5 meeting, party leaders rejected such appeals and the “living with the virus” stance adopted by other governments.
He said in a statement that the easing of virus control measures would result in “massive infections, serious illness and deaths” and that the economy would be “severely affected”. To close the debate, it said that “all sectors of society” should “unify their thoughts and actions” with party leaders.
Instead of abandoning their development goal to pursue “zero-Covid”, party leaders “want both”, Macquarie Group’s Larry Hu and Xinyu Ji said in a report.
“Zero-COVID at the cost of rising unemployment is a tough sell for China’s top leaders, especially in a year of such vital political significance,” he wrote.
This week, the industry ministry asked local governments to help entrepreneurs pay rent, utilities and other expenses. It warned “production conditions are not optimistic.”
“We need to take immediate and effective steps,” a statement from the ministry said.
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Associated Press researcher Yu Bing contributed.
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