China’s Covid-zero policy dashes global hopes of rapid economic recovery

The sharp slowdown in the Chinese economy caused by its strict Covid-zero rules and Beijing’s move away from a traditional dependence on external demand has cast doubt on how much the country will contribute to future global trade and investment.

While China has staged a remarkably quick recovery from its initial pandemic slump, thanks to exports and industrial production, analysts expect the current downturn to be harder to overcome than the one seen in early 2020.

The darker outlook presents challenges not only for Beijing leaders worried about rising unemployment, but also for foreign companies that are counting on China to resume their pre-pandemic level of engagement with the rest of the world.

Calculations based on International Monetary Fund projections show China’s expected average annual contribution to global economic growth through 2027 at around 29%.

While this is a considerable increase, it contrasts with the years following the 2008 global financial crisis, when it approached 40%.

ANZ’s chief economist for Greater China, Raymond Yeung, said Beijing’s economic policies have more recently turned to domestic solutions and reforms, rather than a resumption of its past model that focused on greater engagement with the world.

“Their successful implementation can pave the way for long-term sustainable growth,” Yeung wrote in a note.

“However, the risk of not achieving a similar growth rate is higher. If multinationals start to withdraw their presence, the process of economic convergence could come to an end sooner than anticipated.”

China’s export growth slowed to single digits in April, the weakest since the start of the pandemic, while imports barely changed as Covid-19 brought factory output to a halt and reduced demand.

Officials are expected to follow a trajectory on Covid ahead of an important Communist Party meeting later in the year.

In a sign of that caution, China last week withdrew from hosting the Asian Football Cup next year due to concerns over Covid.

Peiqian Liu, China economist at NatWest Markets in Singapore, said that, given a choice, Beijing is likely to prioritize maintaining victories in tough battles against Covid and rampant debt, rather than its 5.5 growth target. % in 2022, which many analysts consider ambitious.

“Overall, there has been a long-term shift, starting as early as 2018, towards a more domestically oriented economy, boosting the service sector and upgrading the manufacturing supply chain, and moving away from spurred growth and stimulus. in debt,” Liu said.

A broad and sustained slowdown in investment would weigh on demand, contributing to a deeper slowdown in global growth,” she said.