image source,Reuters
Under the new crown epidemic, “dynamic clearing”, “national testing” and “city closure” have become new words familiar to most Chinese. In the past two years, the strict new crown epidemic prevention policy has brought huge benefits to the Chinese economy – when the world is ravaged by the epidemic, China has maintained a roughly normal life internally and stimulated vigorous production capacity, prompting 2021. Exports surged by 21.2%.
However, when Omicron, which has a stronger transmission power, struck, most parts of the world chose to coexist with the virus and eased restrictions. China still strictly controlled the epidemic prevention. In order to achieve “zero”, an increasing price must be paid-beginning in early March, the epidemic situation in Shanghai, China’s financial center, and Shenzhen, where technology and manufacturing are concentrated, has gradually increased, and the city has entered a state of closure or partial closure. .
Outside of China, the global economy is not optimistic – the signal of recession is flashing, the Federal Reserve is raising interest rates to deal with inflation, the war between Russia and Ukraine has not been resolved, and energy prices have repeatedly soared; China will face both external and internal pressures to stabilize its economic market. More and more people are beginning to discuss, what is the economic cost of strict epidemic prevention?
What are the economic costs of the lockdown?
Song Zheng, a professor at the Department of Economics at the Chinese University of Hong Kong, recently conducted a joint study with several scholars, using the monthly updated intercity truck flow changes to calculate the actual income changes in various cities, focusing on the analysis of the 16 city closures in the mainland after the Wuhan epidemic ended. Shenzhen and Shanghai were not included in the sample range of this study due to the earlier research.
image source,Reuters
The empty streets of Xi’an after the city was closed.
The study found that if the city is closed for two weeks, the economic loss will be about 32% of the city’s monthly GDP and about 2.7% of the city’s annual GDP. The economy generally recovered quickly to its original level after the lockdown was lifted, but it did not rebound.
The study concluded that if the city is closed for one month, the economic loss is roughly 4.5% of the city’s annual GDP.
It is worth mentioning that the researchers pointed out that if a mega city like Beijing or Shanghai is locked down for two weeks, the impact on China’s GDP in that month will be roughly 2 percentage points (according to last year’s data, about 190 billion yuan). ), of which about 7% comes from indirect economic losses caused by the local lockdown to other cities.
Song Zheng also mentioned that the economic loss of partial city closures is only a quarter of that of city closures, which fully demonstrates the advantages of precise policies.
Omicron made the closure of the city outweigh the gains?
image source,Reuters
Song Zheng said that although answering this question scientifically requires aggregating research from various aspects, intuitively, the answer is obvious by comparing the combined performances of China and Western countries in the past two years.
“Moreover, China’s anti-epidemic policies have been constantly improving and are constantly being adjusted with the changes in the epidemic.” Song Zheng’s research found that the economic losses caused by the closure of the city after Wuhan were significantly lower than before, even in the severity of the epidemic. Under the same circumstances, this conclusion also holds. This shows that China is indeed controlling the epidemic “at a higher level and at a smaller social cost”.
However, after the emergence of the Omicron variant, the difficulty of “dynamic clearing” may increase exponentially. Changchun, Shenzhen, Dongguan, and even Shanghai have successively closed or closed the city.
image source,Getty Images
The above research believes that in extreme cases, if one-tenth of China’s cities are forced to be closed for two weeks, China’s GDP may lose 3.1% in that month, which is close to 300 billion yuan in 2021 GDP.
Even if there is no extreme situation, China’s internal epidemic has not seen a clear inflection point, which has cast a shadow on the economic outlook – for example, some companies in some areas temporarily suspend production and reduce production, and the combination of geopolitical instability has led to the reduction or cancellation of export orders for some companies, production Both ends need to go down in sync.
The latest PMI (Purchasing Managers’ Index) data has confirmed the downward pressure on the economy. The March 2022 Caixin China Manufacturing PMI released on April 1 dropped 2.3 percentage points from the previous month to 48.1, falling into the contraction range again and recording the lowest value since March 2020.
The PMI is seen as an economy’s “medical checklist”, reflecting overall growth or decline in manufacturing. The PMI line of prosperity and decline is 50. Above 50 means the manufacturing industry is expanding and developing, and below 50 means recession.
Is “5.5% Guaranteed” facing challenges?
image source,Getty Images
In fact, since February, China has been continuously adjusting its new crown epidemic prevention policies. For example, the new version of the diagnosis and treatment plan implements classified treatment of cases, lowers the Ct value, and reduces the “14-day quarantine” to 7-day home monitoring after discharge, which once triggered external discussions. Whether the prevention and control policy will be loosened.
However, at the recent Standing Committee of the Political Bureau of the Communist Party of China, Xi Jinping emphasized “adhering to scientific precision and dynamic clearing”, and then officials of the National Health Commission reiterated that “dynamic clearing” was in line with China’s national conditions, both of which sent a signal – “dynamic clearing” Although it is getting more and more difficult, China is not yet ready to withdraw.
“There is no signal from the content of the Politburo meeting that we will withdraw from the current ‘dynamic clearing’, nor is there a signal to change to the strategy of ‘coexisting with the virus’,” said Lu Ting, chief China economist at Nomura Securities. Painful lessons and the necessity of China’s self-developed more effective vaccines, the probability of ending the “dynamic reset” before March 2023 is very small.
The 20th National Congress of the Communist Party of China will be held this fall, and Xi Jinping is widely expected to receive a third term. “Stability” in the new year is not only an economic issue, but also a political issue.
Under this circumstance, Lu Ting said that with the weakening of the dividend of the dynamic zero-clearing policy, the related costs will rise sharply, which will make it more difficult for China to achieve its growth target of around 5.5% this year.
According to the latest report of Singapore’s UOB Bank, rising energy and raw material prices will depress China’s domestic and external demand, which will be detrimental to economic growth. Coupled with the emergence of a new wave of COVID-19 and the subsequent large-scale city closures, it is predicted that China’s GDP growth will slow down this year. To 4.9%, inflation could rise to 2.9%.
More stimulus?
The UOB report also predicted that China is expected to introduce more monetary easing to stimulate the economy.
Goldman Sachs Economic Research also pointed out that as local new crown epidemics increase headwinds to economic growth and policymakers stick to full-year targets, the urgency of needing more policy support has increased; further monetary easing is expected, including interest rate cuts and Downgrade.
An economist based in Hong Kong told the BBC Chinese that unless there is a very extreme situation, a major crisis in the Chinese economy is unlikely. The policy space that the government can use may be less than when it was four trillion (the “four trillion” stimulus in 2008), but it is still significantly more than the Western countries in terms of possible intensity and speed. It is important to note the possible long-term effects of the policy.
This statement has lessons from the past. After the financial crisis in 2008, China announced to “implement a proactive fiscal policy and a moderately loose monetary policy” and launched an economic stimulus plan of 4 trillion yuan. , but soon, it was regarded as a plan to “drink poison to quench thirst”, pushing up debt risks and blowing up real estate bubbles. China had to “deleverage” for many years to digest the negative consequences and reduce systemic risks.