Focus topics

China must choose between growth and zero-Covid

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  • During intensified COVID restrictions in March and April 2022, China’s economy suffered severe damages. In April, the industrial sector added value decreased by 2.9 percent year-on-year, compared to a 5.0 percent increase in March.
  • The May data shows that the industrial sector added value increased again slightly by 0.7 percent, reflecting gradually relaxing Covid measures in Beijing and Shanghai as well as the effects of extensive stimulus measures issued by the State Council.
  • China’s economic policymakers recognize the disruptions that Covid restrictions cause on both the supply and the demand side. They push policy measures to expedite the resumption of production and logistics. Simultaneously, they decrease or postpone taxes and companies’ social welfare payments to reduce their burdens.
  • Most importantly, many stimulus measures follow the old playbook and focus on accelerated investments into infrastructure projects. Policy efforts to boost consumption, especially in the auto sector, are more limited in comparison.
  • Whether the technocrats are applying the most effective stimulus instruments is debatable. However, the type of stimulus does not change the fundamental fact that potential new lockdowns under the current “Zero-COVID” strategy will immediately cause renewed damages to the economy, no matter what kind of stimulus instruments are in place.
  • Stimulus and Zero-COVID will not be effective simultaneously. To ensure stable economic growth, the Chinese government would have to give up its zero-Covid strategy and seek alternative solutions to “live with the virus”.

Sinolytics is a European consulting and analysis company specializing in China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.


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