How Covid-19 restrictions are choking China's economy: Asian Insider

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WASHINGTON - Shanghai is only slowly emerging now from a citywide lockdown that started in early May, and plans to end this lockdown by next month - but only if there are no rebounds in infections.

New cases outside of the quarantined areas have sent a few more districts back into lockdown.

"There's really no saying when the city will be fully opened, and when businesses can resume and people can go back to work," The Straits Times' China Bureau Chief Tan Dawn Wei said on an ST Asian Insider podcast.

The result: economic numbers are not looking very good.

"The April data across the board has been the worst since February and March, 2020, which was when Covid-19 first broke out in Wuhan and then spread to other provinces" said Ms Tan.

"And this is for retail sales, and also for factory production, which has been hit badly by the lockdowns, which have disrupted supply chains. And, we've seen property sales and car sales plunge by nearly half.

"And also the jobless rate has gone up to about 6 per cent - also the highest since February 2020."

Economists have mostly revised down their forecasts for China's GDP growth for 2022, some to as low as 2 per cent, she said. Beijing on March 5 announced its official 2022 growth target of around 5.5 per cent - its lowest since 1991.

And recent surveys have found that an increasing number of foreign companies in China are considering relocating their current or their planned investments out of China to other markets.

The bad news has not elicited a rethink, in fact, it is the opposite, Ms Tan said.

"They have doubled down on this policy, and that has been put forth through propaganda and the state media, basically saying why they need to stick to this policy, because if they don't, in a country as big as China, they will have a significant number of deaths and that would be too costly for them," she said.

"So, they have said time and again that, yes, we are facing challenging times economically, but then this is only temporary, and we will get through this."

The shock is being felt across the region and around the world, said Dr Lurong Chen, senior economist at the Jakarta-based Economic Research Institute for Asean and East Asia.

China as the "world's factory" has also stopped importing a range of products needed to feed its factories; thus it is not only China's reduced exports, but its reduced imports of raw materials and intermediate products, that have affected the region.

And going digital may help people stay connected, but has its limits, Dr Chen said, speaking alongside Ms Tan on Asian Insider.

The Covid-19 pandemic changed the costs of trading, he said. "Before Covid-19, we enjoyed low transportation costs and low communication costs, but during Covid-19 we've… seen the increased cost of transportation and also the increasing price of communication."

Dr Chen added: "People always say that digital solutions can provide a backup or alternative. But we need to be more… realistic.

"Yes, digital solutions to some extent help to deal with the increasing cost in communication, because we can use smart phones and use the Internet to talk to each other… (facilitating the) ongoing global value chain."

But on the other hand, "we still need ocean transportation. We still need flights to send cargo from one place to the other", Dr Chen explained.

China's slowdown will not help assuage fears that fiscal expansion is triggering inflation - which will be followed by recession.

"The point is, how big (the recession) will be, and how we can deal with that," he said.

With high inflation and a possible recession on its tail, the question now is "how we can run faster" - the region is looking for a new engine to drive it, Dr Chen said.

Many people believe that accelerating digitalisation could be a way to create "new industry, new demands, new surprises, and new job opportunities", he said, adding that this could be part of the solution to deal with the recession.

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