Time to move on from Zero Covid

Time to move on from Zero Covid

It's finally time for Shanghai residents to breathe easier and feel a greater sense of freedom. After nearly two months of lockdown, the commercial hub of 25 million started to allow more people to go out to buy groceries for the first time last Thursday after a fifth straight day of no new Covid-19 infections outside quarantine areas.

As businesses are able to operate with workers living on site, authorities aim to allow more normal operations to resume from June 1, and some of the city's 18 metro lines resumed service yesterday.

All of the above signals that Shanghai is striving to achieve a full resumption of work and production as soon as possible depending on the Covid situation.

Hopefully, such moves will help to change the course of Beijing's zero-Covid policy, as prolonged lockdowns of major cities have greatly damaged the broad economy, dented employment and dampened business confidence.

China is not the only country affected. The slowdown of domestic consumption, disruption at ports and halted factory production have been a drag on the recovery of global trade and investment.

Calculations based on International Monetary Fund projections put China's expected average annual contribution to global economic growth through 2027 at about 29%. That looks impressive, but consider that in the years following the 2008 global financial crisis, the average was closer to 40%.

Besides locking down a large part of the manufacturing sector in their relentless battle against the Omicron variant, Chinese authorities have also doubled down on curbs restricting the movement of people in and out of the country. Beijing insisted recently it would strictly limit unnecessary foreign travel by its citizens, continuing an effective freeze that has been in place for two years.

Multinational corporations with operations in China have started to look at diversifying production or even leaving the country, a recent survey by Germany's Chambers of Industry and Commerce found. The American Chamber of Commerce on the mainland warned on Tuesday that strict Covid controls would hamper foreign investment for years to come as limits on travel block the pipeline for projects.

But the Chinese government has shown no signs that it will change its zero-Covid policy. Restrictions remain in other cities, including Beijing, though a city-wide shutdown has not been imposed. Small but persistent outbreaks of a few dozen new infections a day have prompted authorities to gradually tighten curbs over the past month in the capital.

Clearly, authorities are taking no chances, now or in the foreseeable future. The Asian Games, set for September in Hangzhou, have been postponed, and the country last week abandoned plans to host the football Asian Cup, even though it is not scheduled until June and July 2023.

The leadership under President Xi Jinping reiterated its commitment to Zero Covid at a meeting this month. With the Chinese Communist Party National Congress awaiting in the autumn, the president does not have the luxury of failure. Entering a sensitive political season, the Chinese economy could very well be sacrificed to the goal of ensuring there are no hiccups as Mr Xi pursues an unprecedented third term.

Even Premier Li Keqiang has called for urgent measures to support the virus-hit economy and bring it "back to normal quickly".

The premier, whose traditional role overseeing macroeconomic policies as head of the State Council has been overshadowed amid the concentration of power around Mr Xi, admitted that economic indicators have "weakened significantly" since March.

What the government has to do urgently is boost domestic consumption, which was a crucial driver of the impressive recovery that followed China's earlier success in containing the pandemic. Officials will once again be leaning on consumption to return to 2021 levels of growth.

In the longer term, consumption plays an important role in China's overall economic strategy, based on the "dual circulation" and "common prosperity" initiatives championed by Mr Xi.

The two approaches are vital because as China gets richer, the manufacturing cost of Chinese-made goods rises, affecting price competitiveness abroad. Over the years, China's reliance on exports will decrease gradually. For that reason, officials have been stressing the need to stimulate consumption.

The latest Covid outbreak will most likely be brought under control with restrictions lifted in the near future, but the question remains what happens if another outbreak occurs. Stability over the long term will be essential for consumption to increase again.

Nareerat Wiriyapong

Acting Asia Focus Editor

Acting Asia Focus Editor

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