Business

Why China will likely recover more slowly from the latest Covid shock


As Shanghai tries to reopen for business, a downtown district over the weekend banned residents from leaving their apartment blocks again for mass virus testing. Pictured here, in another district on May 21, 2022, is a street outside a shopping mall.

Xu Kaikia | Visual China Corporation | beautiful pictures

BEIJING – China’s economy will not recover quickly from the latest Covid outbreak, many economists predict.

Instead, they expect a slow recovery ahead.

When the pandemic first hit in 2020, China recovered from a decline in the first quarter to growth in the second. This year, the country faces a much more contagious variant of the virus, weaker overall growth, and less government stimulus.

The latest Covid outbreak that began in March has hit the city of Shanghai the hardest. About a week ago, the city announced plans to get out of lockdown – and fully reopen by mid-June.

“For China, the main story here is that we have seen the light at the end of the tunnel. Robin Xing, chief China economist at Morgan Stanley, said in a webinar on Friday.

“But we also think the road to recovery is likely to be very slow and bumpy,” Xing said.

It’s a process match and get started. Over the weekend, a downtown district of Shanghai banned residents from leaving the apartment complex to conduct mass virus testing. Many areas in the capital Beijing asked residents to work from home as the number of local daily cases increased – reaching 83 cases on Sunday, the highest for the city’s latest outbreak.

Case in point: German car manufacturer Volkswagen, The company, which has factories in two of the worst-affected regions this year, said on Wednesday its production sites in China were up and running, but control measures were taken. The control of Covid is disrupting the supply chain.

The automaker said it could not provide a specific figure on production levels because the plants are joint ventures operated with local partners.

Although the number of Covid cases nationwide fell last month, the many new cases stretching from Beijing to southwestern China prompted stay-at-home orders and mass testing. Cargo volume remains below normal.

“Many regions and cities tightened restrictions at the first sign of local cases,” Meng Lei, China equities strategist at UBS Securities, said in a note last week.

“Our case studies of Shanghai, Jilin, Xi’an, and Beijing show that logistics and supply chain disruptions are the biggest pain points affecting manufacturing operations,” says Meng. again”. “Therefore, the resumption of work can happen gradually, not overnight.”

Policymaking cycle ‘disrupted’

The Chinese government has stuck with its strict policy of “dynamic zero-Covid” despite the emergence of the highly contagious omicron variant this year.

Dan Wang, chief economist at Hang Seng Bank of China, said the “most significant impact” of the Covid resurgence was that it had “disrupted” the usual policy-making schedule.

She said that the latest wave of cases and lockdowns only really started after the central government released annual economic plan at the “Two Sessions” congressional meeting in March.

In China’s highly regulated economy, this annual meeting is an important part of the cycle of developing and implementing national policies – across departments and regions.

Supply chain disruptions and lackluster consumption are manageable, but once the policy schedule is disrupted, “it’s very difficult to get it back on track quickly,” said Wang. Wang said.

There are so many different economic goals that “a lot of compromises have to be made between [government] “That has made the policy process extremely slow and lagging,” she said. “

The information office of China’s State Council, the country’s top executive body, did not immediately respond to CNBC’s request for comment.

Politics is of particular importance to officials this year ahead of a regular shuffle of leaders expected in the fall. Chinese President Xi Jinping is expected to continue his unprecedented third term.

Half of stimulus in 2020

At the beginning of March at the “Two Sessions”, Beijing set targets such as GDP growth “about 5.5%”. But about 1 percentage point or more higher than many forecasts investment banks – have repeatedly cut their growth estimates in China while the Covid lockdown continues.

Wang maintains a relatively high forecast of 5.1% as she expects China to ramp up stimulus and ease Covid’s tight control measures by the end of summer.

But so far, nearly two months after Shanghai’s serious lockdown, policymakers have yet to make major changes.

Whether in terms of interest rates or fiscal policy, the amount of government stimulus will still be half of what it was during the peak of the pandemic in 2020, Morgan Stanley’s Xing said.

Read more about China from CNBC Pro

With the exception of the unemployment rate, most economic indicators are not worse than at the beginning of 2020.

Among other measures, the central government announced tax and fee cuts for small businesses, and began cutting mortgage rates. But the impact, especially on the massive real estate sector, could take a long time to kick in.

Xing noted that even without Covid, the easing of policies in the property market would take three to six months to affect home buying activity.

Other regions of China are also noisy

However, there is also the possibility that growth in China could come faster than many expect.

Larry Hu, chief China economist at Macquarie, said: “It is remarkable that experience over the past two years shows that a Covid-induced recession tends to end quickly, especially in with quick and strong policy responses,” Larry Hu, chief China economist at Macquarie, said in a note last week.

For much of China, work continues, even with additional virus testing requirements.

About 80% of manufacturing activity in southern China has returned to normal. Although the region’s major city Shenzhen closed nearly all businesses for about a week in March, moving products by truck within a province was “OK” Klaus Zenkel, president of the South China division of the EU Chamber of Commerce in China, told CNBC on Friday it was due to the very low number of Covid cases in the region.

Members in the southern province of Guangdong – a manufacturing hub – “are all busy, they all have work to do,” Zenkel said. He noted that businesses are keeping their warehouses fuller than before to prevent prolonged shortages.

But “unpredictability is there,” he said. “You don’t know what’s going to happen.”



Source link

news7f

News7F: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button