China’s economy faces a number of challenges — specifically the spread of the covid19 pandemic and the country’s ambitious zero-covid approach (which has resulted in severe lockdowns) and a grave real estate crisis arising out of the crackdown on the property market.
The slow down of China’s economy was acknowledged by Chinese Premier Li Keqiang. In a meeting he is reported to have said:
‘It is necessary … to further cut taxes and [administrative] fees to ensure a stable economic start in the first quarter and stabilize the macro economy.’
During a meeting in December 2021, the Chinese leadership flagged ‘stability’ as its key aim for 2022. This was in stark contrast to targets for 2021, which was focused on ‘the disorderly expansion of capital’ driven by President Xi Jinping’s objective of reducing inequalities in Chinese society.
China’s zero covid strategy is impacting its economic links with the rest of the world as international air travel is restricted, and even the stringent lockdowns applied in the country are likely to take their toll on global supply chains. A lockdown in Xian for instance has already prompted Samsung Electronics and Micron Technology, two of the world’s largest memory chip makers, to red flag the possibility of their chip manufacturing bases in the area being hit.
As a result of its zero covid strategy, and its aim of controlling the spread of the pandemic in Xian, and also before the Beijing winter Olympics next month, China has further tightened regulations for the import of products from neighbouring countries in South-East Asia. Trucks, with agricultural products, from Vietnam and Myanmar have been stranded for weeks (some for well over a month), as a result of which products have being rotting (especially fruits like mangoes and jackfruit), and exporters in both countries have had to face losses (exports of non agricultural products, such as rubber and minerals, from Laos to China have also suffered). Apart from stringent checks, exporters of commodities are supposed to carry Chinese trucks across the border – the unloading of goods and transfer is a time consuming process and this leads to further delays.
It is not just mainland China, but even Hong Kong an important financial hub has been following a zero covid policy which has impacted its economy – especially the tourist sector. The fact that Hong Kong will be opening to China before it opens to the rest of the world has also not sent out a positive message to international businesses.
China faces the onerous responsibility of not just keeping covid19 under check, but also preventing a further slow down in its economy. Economic challenges and the zero covid approach will lead not only to domestic problems, but also impact its economic linkages with the rest of the world, especially neighbouring countries in South East Asia (China is an important market for agricultural products of Vietnam and Myanmar). The slow down in China’s economy and the remarks by Li Keqiang with regard to the same also highlight the limitations of Xi Jinping’s economic vision and the fact that there is a growing concern with regard to the country’s possible economic challenges over the next few months.