China counts the cost of its zero-Covid policy

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Dozens of cities in China are in full or partial lockdown in response to the spread of Covid-19 cases, meaning that a population roughly the size of the US has been stuck at home for several weeks, often with limited access to food and medical care.

Among those cities in lockdown, Shanghai has received the most attention. Deservedly so. Although the city relaxed quarantine rules somewhat this week, about 4.5mn people remain confined to their homes and roughly 7.9mn are permitted to leave their homes but must remain within their neighbourhoods.

Food distribution has broken down in some parts of the city, leaving some residents to go hungry as piles of rotting produce are left in the street. The anguish of many people cooped up in their apartments and getting by on scant rations has been caught in videos shared widely on social media.

But the crisis in Shanghai and other cities is not only humanitarian. It is most starkly an economic problem and, to an extent, a political issue too. The IMF has cut its GDP growth forecast from 4.8 per cent to 4.4 per cent for the full year — a particularly sharp contraction from the 8.1 per cent posted last year, hurting both China and the global economy.

The crunch looks set to be particularly pronounced in April. Ting Lu, China chief economist at Nomura, predicts that GDP growth in the second quarter of this year will slump to 1.8 per cent, down from the actual 4.8 per cent seen in the first quarter.

The reasons behind the slump reveal deeper faultlines. One source of weakness is the severe contraction in the country’s huge property market, which has relinquished a longstanding role as a dynamo for broader prosperity. Enough real estate to house an estimated 90mn people now stands empty.

Nevertheless, the biggest drag on GDP growth is political. Beijing is steadfastly sticking to its zero-Covid policy. The full and partial lockdowns in cities across the country are playing havoc with demand for housing, durable consumer items and capital goods as incomes fall and uncertainties rise. The sheer logistical challenge of getting goods from A to B is acting as a big drag.

As China’s population of 1.4bn people contends with their third year of Covid, many have drained their savings to a level at which they are obliged to reduce spending.

All of this throws an unsparing light on to Beijing’s Covid strategy. National pride has prevented China from approving foreign mRNA vaccines for use among its people, leaving them to take the less effective vaccines developed by domestic companies.

This has meant that despite an impressive vaccination rate (88 per cent of people have had two jabs), the elderly in particular are still thought to be at real risk from coronavirus.

It is true that Beijing has been urging the development of homegrown mRNA vaccines — two of which have now entered clinical trials — but China needs to act now with dispatch. It should swallow its pride and approve mass imports of foreign mRNA vaccines immediately, thus allowing it to chart a way out of its draconian zero-Covid policy and relax lockdowns that are imposing an enormous economic and psychological toll.

The urgency of this task cannot be underestimated. China’s zero-Covid policy had largely kept the virus’s spread in check until the highly infectious Omicron variant emerged. Beijing now has a stark choice: start a mass vaccination programme using foreign mRNA vaccines or sustain the ruinous economic and social costs of continued lockdowns.

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