China’s massive lockdown will bring an economic loss

As many as 400 million people in China are estimated to be on the verge of a lockdown as authorities try to stem the rapid oscillation outbreak that has begun to weigh on the world’s second-largest economy.

Millions of people have been sent to isolation facilities in China and millions more have been told to stay at home. Dozens of city officials have shut down normal daily life across the country in a bid to track and trace the virus and stop China’s worst outbreak since the epidemic began.

Japanese bank Nomura estimates that 373 million people in 45 cities are currently under some form of lockdown, about one-third of the population, equivalent to about $ 7.2 trillion in annual GDP.

It is part of an epidemic strategy that is growing increasingly divisive in anticipation of China’s own economic growth – which has prompted economists and even the country’s prime minister to sound an alarm.

Experts warn that China’s economic growth target of 5.5 percent for 2022 is unrealistic now that daily economic life has come to a standstill. Prime Minister Li Keqiang on Monday warned local officials about the rising economic costs of each new coronavirus outbreak and called on authorities to balance the epidemic control with the need to encourage growth.

“There is a need to coordinate epidemic prevention and control and economic and social development,” Mr Lee said, according to state media.

More than 350,000 cases of the virus have been reported locally in China since its last outbreak in March. While this may not seem like a big deal for a country battling an outbreak of highly contagious Omicron variant, China is still pursuing a strategy aimed at eradicating the virus altogether, driven by concerns about its older, unvaccinated population. There are still about 40 million people over the age of 60 who have not had a covid jab.

China’s response to its latest outbreak has begun to affect the world’s global supply chain, as factories that make iPhones, electric cars and semiconductors have had to shut down. Due to roadblocks and the need for rigorous covid testing, some important components cannot be tracked from port to factory.

Pegatron, the main producer of Apple’s iPhone, said this week that two of its factories in China had stopped production “in response to the need to prevent Kovid-19 from the local government.” German auto parts maker Bosch and automaker Tesla are among other global companies that had to suspend operations because truck drivers had to show negative test results within 48 hours to enter a city like Shanghai.

Authorities opposed the protest with all available police forces, special services and the army. ”

Efforts to prevent an outbreak are creating so many problems that economists have revised their expectations for China’s economic output this year. One economist has so far predicted that China could go into recession in the coming months.

Beijing has prioritized a zero-tolerance policy towards coronaviruses and outbreaks, said Ting Lu, chief China economist at Nomura.

“The problem is that when you set goals for such a policy, local governments will compete with each other,” he said. The result of this competition is that local governments will develop their own epidemic control policies so that they do not risk an outbreak that is difficult to control. For example, officials in Guangzhou, a city of 15 million, began a citywide investigation after discovering 20 local cases last week.

“If all local governments do this, the whole economy will be in trouble,” said Mr Lu.

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