The economy today

China: the economy challenged by the “zero Covid” strategy

Audio 03:55

Policemen in coveralls carry barriers as residents protest against the Chinese government's containment strategy, in Shanghai's Pudong district on April 14, 2022. © REUTERS

By: Pauline Gleize Follow

3 mins

Shanghai has given itself until the middle of the week to halt the spread of the coronavirus outbreak outside quarantine zones.

This could be a sign of an upcoming relaxation of confinement which has aroused the discontent of part of the population.

In the name of the “zero Covid” strategy still followed by China, restrictions have multiplied across the country.

Something to shake up the economy once again.

Advertisement

Several sectors are bearing the brunt of the confinements in Shanghai, the Chinese economic capital, and more widely in the northeast of the country, the cradle of the automotive industry.

Admittedly, the American Tesla intends to resume its activity after shutting down its Shanghai factory for three weeks.

But the boss of its Chinese competitor, Xpeng, has warned that without rapid improvement, all Chinese OEMs will have to stop production in May.

The major international manufacturers are also penalized like Volkswagen.

Even Huawei, which supplies components and an operating system to automakers, has warned that time is running out.

Because the sector of new technologies is not left out.

Companies that assemble computers and phones for Apple have suspended operations.

Ditto for Unmicron Technology which supplies printed circuits to Intel and Apple.

And these are just a few examples.

Also affected, the financial sector, IPOs requiring face-to-face meetings.

Difficult logistics

Some companies are trying to continue to operate by isolating workers who have to live on site to respect confinement.

But this strategy does not solve everything.

In Shanghai, the restrictions have caused major disruptions in logistics

Road transport has lost its fluidity, which affects China's largest container port.

According to shipping giant Maersk, this has led to terminal congestion to such an extent that the shipowner has stopped taking new orders for refrigerated containers and dangerous goods.

Beyond the new disruptions to be expected on international supply chains, the Chinese economy should suffer.

More than a quarter of the population is confined to varying degrees depending on the territory.

This represents 40% of the country's GDP according to Nomura Bank.

So,

that have just been published are better than expected: the economy grew by 4.8% over one year in the first quarter

But it must be said that the year had started off with a bang and that this rate does not yet reflect the overall impact of the restrictions.

The effects of the Shanghai lockdown should be visible in April's figures.

When you add to the repeated confinements the global risks linked to the war in Ukraine, it makes some analysts doubt the ability of the Middle Kingdom to achieve its objective of a growth of 5.5% of GDP in 2022.

Weakened attractiveness

?

The European Union Chamber of Commerce has also warned that this “zero Covid” strategy could harm Shanghai’s attractiveness.

In addition to the strictly economic disruptions we have just mentioned, the drastic rules imposed during the

lead some expatriates to ask themselves the question of leaving.

The impact will depend on the duration of these measures.

This will also perhaps depend on the lesson that will be drawn from this episode.

►

: Shanghai records its first three deaths since the start of the reconfinement

Will the risk to the Chinese economy with a less lethal variant deviate from the “zero Covid” strategy?

In any case, Xi Jinping's statements last week do not point in this direction.

On the contrary, will other cities take strict measures more quickly than Shanghai to avoid the multiplication of cases, at the risk of increasing uncertainty for companies?

A few months before the XXth Congress of the Chinese Communist Party during which Xi Jinping will run for a third term

political considerations could well condition part of the answer.

Newsletter

Receive all the international news directly in your mailbox

I subscribe

Follow all the international news by downloading the RFI application

google-play-badge_EN

• Economy

• China

• Coronavirus