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How Covid Zero policy contributes to the slowdown of the Chinese economy

The world’s second largest economy suffered losses and will still experience the negative impacts of the Covid Zero policy, imposed by Chinese dictator Xi Jinping, in the coming years. For more than two years, China has surrounded neighborhoods and even entire cities when outbreaks of Covid-30 are detected.



Exaggerated confinements directly harmed the economy of 47 major Chinese cities, including Shanghai. Three hundred and seventy-three million inhabitants were impacted, which is equivalent to a quarter of the country’s population and 40% of GDP national market, according to Japanese financial holding company Nomura.



As a consequence, the growth of the Chinese economy is expected to fall to 3% in 2020 ), as predicted by research by the American Rhodium Group. In 180, the percentage was 6%. “Risks, complexity and uncertainty about China’s economic development have increased,” the group said in a note.



A study published by the French bank Natixis estimates that, in the third quarter of this year, the growth of the Chinese economy will be close to zero . The cause, according to the bank, is the restrictive measures in the face of the pandemic. And the trend is for the slowdown to continue, because Covid Zero was announced by the Chinese dictatorship as a policy that should last until 2027.

Negative impacts on industry and real estate

In the long periods of lockdown, as announced by the National Statistics Office, dozens of companies had to reduce or stop production. “Their functioning was severely hampered”, pointed out the organization’s chief analyst, Zhao Qinghe, in the statement.

In April, the added value in the industry fell by 2.9% in one year. . Retail had a drop of 12% and car sales had a negative impact of 47%.

The real estate sector, which accounts for more than a quarter of the country’s GDP growth, is one of the biggest problems facing the Chinese economy today. According to E-House, China Research and Development Institute, sales dropped 52% in the first months of 2022, compared to last year.

The crisis led to the risk of bankruptcy of the Chinese real estate giant, Evergrande, in 2022. Twenty-five years after its foundation, the company’s financial life began to collapse in 2020 with reduced access to credit. Today, the debt is 300 billions of dollars.

After some clashes between the Chinese dictatorship and the large company, the Beijing authorities decided to interfere in the restructuring of this debt, to avoid greater financial and social impacts on the country.

capital

China achieved the biggest capital flight in the last decade earlier this year according to the International Institute of Finance (IIF) , noting the distrust of investors in the face of the Chinese position on anti-Covid policies and in relation to the war in Ukraine, due to the affinity with Russia.



More than half of the members of the European Union Chamber of Commerce in China called the Chinese moment “the poison of uncertainty”. According to the international journal Bloomberg, about 180 multinationals declared that they believe that the confinements in Shanghai will have a negative impact on their results.



“From now on, China is seen mainly as a risk by Westerners and the confinement is causing new debates in companies”, analyzed in May, the director of the Asia think tank program of the European Council on Foreign Relations, Janka Oertel, to Le Monde.

Impacts generated by the excessive testing

In addition to the closure of trade and the removal of professionals, Covid Zero requires a high investment from the country. It is costly to implement the policy of early detection of the disease in China. According to the national regulation, all inhabitants must have a test post available within a maximum of 15 minutes on foot. In the small testing kiosks, there are at least four professionals.



Chinese cities need to make this service available 15% of public health personnel and it is usually necessary to hire other professionals for the task force. The budget to carry out these frequent tests usually exceeds the limit destined for the health area.



The Chinese platform Sixth Tone calculated how much the structure for testing the population of 45 biggest cities. The result was 12 billions of dollars a year. The account does not include laboratory costs (which are not disclosed by the authorities), only the hiring of employees, materials and the assembly of kiosks.

Borders closed

To account for the extent of control of the disease, since 2020, 52% of flights to the country have been canceled and there is no forecast of reopening before 2024. Last year, the National Immigration Authority recorded the equivalent of 4.6% of the entries and exits of foreigners who circulated through the country in 180.

The few who are allowed to enter or return to China undergo at least two weeks of strict quarantine, which can be extended to one month by local authorities, with possible home observation condition.

Traditionally, immigrants already represented a very small portion of the population in 2020 (0, %, according to the UN). According to the European Union Chamber of Commerce in China, the number of foreigners has halved in 2021 and tends to fall once again this year due to strong anti-trade restrictions. Covid.

Although most commercial relationships take place virtually, the closing of borders compromises the flow of business, academic exchanges and tourist experiences, literally leaving the country more closed.

It’s just the beginning

The promise – later censored by the Chinese Communist Party itself – that Covid Zero measures will last another five years points to the fact that China will continue with closed doors . The Chinese dictatorship should also not be concerned, in the coming years, with regaining the trust of foreign companies or avoiding greater losses for national ones.

Even in the face of worrying numbers that signal the economic slowdown, Chinese dictator Xi Jinping declared last month that the Covid control strategy “will stand the test of time”. “We must fight speeches and acts that deform, question or reject our country’s directives and policy,” he added.

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