Asia’s biggest economy seems to miss its economic targets this year, and Xi Jinping’s over-arching zero-COVID policy may be to blame.
Despite protests from healthcare professionals, researchers, economists, and political analysts, Xi continues to push a strategy to eliminate transmission at the local level. This strategy may have effectively contained the virus in the first eighteen months of the pandemic. After that, however, the emergence of the more transmissible Delta and Omicron variants has significantly decreased its effectiveness.
In fact, in light of the current lockdown in Shanghai, which is affecting over 26 million people, China’s zero-COVID stance is already costing the country around $46 billion a month in the gross domestic product (GDP). This situation makes it highly unlikely to hit the 5.5% GDP target it has set for this year.
What the Experts See
Economists at the Chinese University of Hong Kong say that lockdowns of the same magnitude as that of Shanghai are expected to cost China around 3.1% of its GDP in terms of lost output. They also say that this negative impact may double – even triple – if more cities are added to the government’s list of lockdown areas.
Xi’s posturing aside, the Chinese government scrambles to recalibrate to prevent a major economic crisis. Before the Russian invasion of Ukraine, the People’s Bank of China was already ramping up stimulus. The government has augmented its cash reserves by $190 billion in the first quarter of this year. Lower taxes for key sectors are also being considered.
A Perfect Storm is Looming
Xi’s hardline stance clashes with slowing economic growth throughout the world. It isn’t helping that the rising cost of crude oil and other necessities has been threatening a spike in inflation rates everywhere. What makes the economic outlook gloomier is the US Federal Reserve’s plan to launch a cycle that will lead to belt-tightening measures.
Political ambition may also keep Xi from pivoting from the zero-COVID policy. This year, the Chinese premier is campaigning for a third term in office – and being unable to contain the pandemic in key cities may spell the end of his time in power. In which case, Xi is doing everything he can to curb escalating infection rates well ahead of the polls.
China’s internal issues aren’t its only source of economic concern for the remainder of 2022. The ongoing conflict between Russia and Ukraine has put a strain on the country’s relationship with Russia in light of the world’s outrage against the invasion. Experts believe that China has a lot to lose if it chooses to help Putin and his government elude international sanctions; indeed, the country may be sanctioned, as well, for its support of a hostile power.