While the rest of the world tries to live with the corona virus, China is consistently implementing its zero tolerance strategy. The course decreed by President Xi is not officially criticized. However, the consequences for China’s economy are severe.
Ikea customers are fleeing a store in Shanghai because the authorities want to seal off the branch and put people under corona quarantine. Tens of thousands of tourists are stuck on the southern Chinese holiday island of Hainan after a nationwide lockdown was ordered. Rigorous China’s leadership is sticking to its zero-Covid course. The economy is also feeling the effects.
Expressed in numbers: In July, industrial production grew by only 3.8 percent and was therefore much weaker than expected. Retail sales – a key indicator of consumption – rose 2.7 percent after rising 3.1 percent in June. In the second quarter, the second largest economy narrowly avoided a downturn. Gross domestic product grew by just 0.4 percent year-on-year – the weakest increase since the beginning of 2020, when the corona pandemic paralyzed the Chinese economy and GDP shrank by 6.8 percent. If you exclude the shock from the outbreak of the virus pandemic, this was the lowest growth since data collection began in 1992. The unemployment rate is officially 4.5 percent – but almost 20 percent of young people are unemployed.
China’s leadership is reacting to even small corona outbreaks with mass tests and tough lockdowns. This is intended to nip the spread of the virus in the bud. Shanghai was even almost completely sealed off for two months in the spring. Houses were blocked off with high barriers and construction fences. Robot dogs with blaring megaphones strapped to them ran through empty streets: “Wear masks, wash your hands often, and measure fever!” In one district of the city of 26 million, residential areas were monitored from the air with drones and checked to see whether the residents were complying with Covid measures.
The lockdown in Shanghai has ended and the authorities have hardly discovered a corona case in the past few days. Nevertheless, the obligation to carry out regular corona tests has been extended until the end of September. If you don’t have a negative PCR test at least every seven days, your so-called health code on your smartphone will be changed from green to yellow – and your freedom of movement will be severely restricted. To gain access to public places, QR codes must be scanned anywhere in China. A yellow code on the mandatory app means that, for example, you can no longer enter shopping malls, offices or use public transport. Corona restrictions apply in other cities in China and regions, the freedom of movement for millions of people is restricted.
At the latest with the spread of the highly infectious omicron variant, the Chinese zero-Covid strategy is reaching its limits. The number of corona infections is currently increasing again, with more than 2,000 new cases reported in the last four days. According to official information, 2,368 people were infected on Monday, the highest level in three months. This increases the likelihood that restrictive corona measures will be imposed in other parts of China.
The consequences of these measures can be seen in the weak consumption. Those who are locked in their homes or are not allowed to enter restaurants and department stores spend less money. Lockdowns prevent people from getting to their jobs. Domestic tourism has collapsed. The cordoning off of the holiday island of Hainan should not increase the desire for a holiday trip among many Chinese.
The situation is made worse by the real estate crisis. Many apartments for which buyers have already paid money are not being completed at the moment because the developers are in financial difficulties. That too is poison for the investment and consumer climate. Private individuals and companies are holding back on their spending.
Against this background, the Communist Party, led by President Xi Jinping, is saying goodbye to the proclaimed goal that economic output should grow by 5.5 percent this year. After a meeting of the 25-strong Politburo, the state media now only said that the country “will work hard to achieve the best possible result for the economy this year”.