Strict lockdown policy to slash China's GDP by half
Beijing, March 30: China has experienced its worst Covid outbreak in recent weeks since the pandemic's peak in early 2020 when the economy was in free fall. The recent increase in cases might impact first-quarter GDP by at least half a percentage point.
According to an analyst at the Chinese University of Hong Kong, the rigorous lockdowns are projected to cost the country at least USD 46 billion per month, or 3.1 percent of GDP, and the damage might be doubled if more cities tighten restrictions.
Shanghai's 26 million residents are under lockdown, putting China's hardline "zero-Covid" strategy to the test and shaking markets far beyond the country's borders. China's largest city alone has the potential to lower the country's real GDP by 4 percent.
As the financial hub struggles to curb a growing Omicron outbreak, millions of Shanghai residents are being forced to stay at home and undergo coronavirus testing. Trucking data in Shanghai, nearly 2 million trucks that crisscross China and whose movements are highly correlated with local economic activity, indicates economic activity fell 40 percent below normal even before the lockdown started, as per the estimates.
According to the report, more cities may follow Shenzhen's approach, stopping public transportation and barring people from entering and leaving the city. The lockdown will hit both consumption and production, and its spillover impact will put the entire supply chain at risk, according to the report.
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On March 11, the capital of Jilian province, Changchun, imposed a lockdown over Omicron cases, and economic activity dropped by nearly 66 percent compared to normal levels. Over 9 million people were confined to their homes and subjected to three rounds of mass testing, with non-essential businesses shut and public transportation closed. Changchun, the industrial hub of northeast China, produced 11% of China's annual auto production.
Shenzhen's economic activity was decreased by 34% during a week-long lockdown during which residents were examined three times. Economists believe that a one-month shutdown of all cities would reduce China's GDP by 53% in the worst-case scenario. If China's four largest cities were all placed under rigorous lockdown at the same time, inflation-adjusted GDP would plummet by 12%.
China's dynamic 'Zero-Covid' strategy has far too high economic costs. Investors' worries over large-scale city closures contributed to a significant drop in China's stock market.
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-PTC News
