Coronavirus: economic toll of China’s latest outbreak ‘10 times more severe’ than Wuhan in 2020

Coronavirus-driven disruptions have affected 160 million people this year in cities with a total economic output of 18 trillion yuan (US$2.68 trillion), a top economist says
It is challenging for China to reach its economic growth target of ‘around 5.5 per cent’ for 2022, or even match the 2.3 per cent figure of 2020, Xu Jianguo says

Coronavirus China

Orange Wang

Published: 6:00pm, 10 May 2022

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The economic impact of China’s latest coronavirus outbreak could be more than 10 times that of the initial wave in Wuhan in 2020, a top economist has warned, underscoring growing concern about the toll of the government’s zero-Covid policy.

Coronavirus-driven disruptions, including lockdowns and transport restrictions, have already affected 160 million people this year in cities with a combined economic output of 18 trillion yuan (US$2.68 trillion), according to Xu Jianguo, associate professor of economics at the National School of Development in Peking University.

For comparison, the initial Wuhan outbreak two years ago affected 13 million people in a regional economy worth 1.7 trillion yuan, he said.

Xu estimated China has seen more than 800,000 infections since the beginning of 2022, far surpassing the 92,514 cases in 2020.

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How a Beijing residential compound lives through an Omicron lockdown

“The severity of this year’s outbreaks is more than 10 times that of 2020 … in terms of the size of the affected population and economy,” he said at a webinar on Saturday hosted by Hongfan Institute of Legal and Economic Studies.

He said it was challenging for China to reach its economic growth target of “around 5.5 per cent” for this year, or even match the 2.3 per cent growth figure recorded in 2020. To reach the growth target, more policy instruments are necessary, he said.

The government’s zero-Covid policy, which relies on lockdowns, mass testing and quarantine in government facilities, has put pressure on the service sector, retail, production and logistics.

Unlike in 2020 during the Wuhan outbreak, some of China’s largest and most important cities have been locked down this year, including Shanghai, Suzhou, Shenzhen, Dongguan and the capital Beijing, which are important nodes on the industrial chain, Xu said.

Coronavirus testing across China could cost 1.7 trillion yuan a year

Following a sharp decline in export growth in April, a growing number of analysts have warned reaching the 5.5 per cent growth target will be difficult.

But China’s top leaders refuse to budge from the zero-Covd strategy and the government has begun censoring online criticism of the policy.

More economists have slashed their forecasts for China’s 2022 gross domestic product growth, while foreign business groups are saying the draconian lockdown measures are making the country a less attractive destination for investment.

Despite signs of growing stress on the economy, Xu said fiscal and monetary support policies are weaker than those in 2020. Exports and the real estate sector, the major drivers of economic recovery two years ago, have also lost steam.

To put it simply, it is already difficult to reach 2.3 per cent this year, and even harder to go beyond this rate

Xu Jianguo

“To put it simply, it is already difficult to reach 2.3 per cent this year, and even harder to go beyond this rate,” Xu said.

Authorities are providing fiscal stimulus via subsidised infrastructure spending, Xu said, but he warned there might be side effects like bad debt or corruption.

There was room for policy relaxation in the property sector, Xu said, adding monetary easing could be functional, but faced risks like rising inflation and exchange rate volatility.

“The main reason for the cooling economy right now does not lie in social financing or monetary issues, but in Covid prevention and control,” he said.

China’s central bank on Monday acknowledged China’s economy was coming under increasing pressure from the virus and pledged to step up policy support.

01:27

Residents locked inside homes with wires and bolts due to Covid-19

Xu Shaoyuan, a research fellow at the Development Research Centre of the State Council, said this year’s outbreak was causing more economic damage than during the beginning of the pandemic two years ago, as many companies were close to exhausting their savings.

“Providing income support for small businesses and service firms, which provide many jobs, and letting them resume work as soon as possible is the key to protect people’s livelihood,” he said at the webinar.

Xiao Lisheng, an economist at the Chinese Academy of Social Sciences, said the economy was undergoing a recession and would take another two to three months to bottom out.

But he was positive about the outlook.

“If the outbreaks can be brought under control in the second or third quarter of the year, we don’t rule out a sharp increase in investment, and consumption is also likely to rise if there are not too many new outbreaks next year,” he said at the Saturday webinar.