Shanghai has been in a total lockdown for weeks. There is mass testing in Beijing, travel restrictions and a full closure of the capital may not be far away. Other mega-cities will soon follow as the omicron variant rips through the country. China is increasingly looking like an economic and political disaster zone. It is committed to a crazy zero-COVID policy that will take a huge toll on its society and economy – New Zealand, except amplified to the power of a thousand.
Not very surprisingly, the China bears are out in force, predicting that weaknesses in its centralised, autocratic system are about to be brutally exposed, and that its rise to global pre-eminence will be stopped dead in its tracks.
It is a tempting narrative – and yet it is also fundamentally flawed. True, President Xi Jinping and his ruling clique have made plenty of mistakes in their COVID strategy, although they are hardly unique in that. They should have got shots into people’s arms faster. Even so, there is growing evidence a triple dose of the Sinovac shot delivers acceptable levels of immunity.
Lockdowns might be harsh, but they will make sure the healthcare system is able to cope while vaccination delivers enough immunity to deal with the virus. By the autumn, the relentless rise of its economy will be back on track – and it will take more than COVID to derail China.
With the war in Ukraine raging, and money markets struggling to cope with soaring inflation and rising interest rates, it is easy to ignore what is, without question, a far more important story for the global economy. While the rest of the world has more or less forgotten about COVID, and completely reopened, China is stuck in 2020.
Shenzhen started locking down in January. By March, Shanghai had gone into a total lockdown, with travel into and out of the city severely restricted, a strict quarantine regime, mass testing, and the closure of offices, schools and factories. Beijing has already started mass testing alongside selective lockdowns and it would hardly be a surprise if the whole city was sealed off over the next couple of weeks. Many other mega-cities may follow. After all, as we already know, omicron rips through countries at lightning speed.
That is hardly a minor matter. New Zealand and Australia’s zero-COVID strategies were interesting experiments for public health officials. But neither country makes much difference to the global economy one way or another. By contrast, China is the second largest economy in the world, and was set to overtake the US this decade. Its manufacturers are crucial to supply chains globally, and with container ships backing up in Shanghai’s massive harbours, those were already creaking. Its money and investment drives the world’s markets. What happens in China determines what happens in the rest of the world.
Its zero-COVID strategy has brought out the bears in force. Lockdowns will hammer an economy that still relies heavily on manufacturing; you can’t make microchips, cars or phones working from home. It will provoke social unrest, the bears argue. And it will expose the limitations of China’s top-down, controlled management of society, potentially even provoking a challenge to Xi’s rule (hardly helped by his backing of Vladimir Putin’s catastrophic invasion of Ukraine). The benchmark Shanghai index is down from 3,600 to 3,000 so far this year as investors take flight, and surveys show foreign companies are increasingly weighing up whether they should pull out of the country.
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