China needs to fine-tune its zero-Covid rules to restore investors’ confidence and revive economic growth, says outspoken former finance minister Lou Jiwei, in a rare public warning from a political insider about the country’s response to the Omicron wave. Unlike in the United States and Europe, inflation is not the main concern for China, which is instead facing “threefold pressure” – namely, a contraction in demand, supply shocks and weaker expectations – Lou said at a virtual forum on Thursday. “China needs to draw on past experiences and lessons of pandemic prevention and control, further optimise policy responses, while launching reform and opening-up measures to strengthen growth momentum,” he said. His remarks came against a backdrop of growing concern about Beijing’s draconian zero-Covid controls, which include lockdowns, mass testing and quarantine in government facilities. If this problem is not solved, everyone [in the private sector) will be unwilling to invest Lou Jiwei Overseas investor sentiment is at rock bottom, though Beijing has taken steps to placate foreign businesses and rally more private spending to shore up the ailing economy. “People think the current method is still not good enough, and, if this problem is not solved, everyone [in the private sector] will be unwilling to invest,” Lou said. Pandemic controls over the past few months have led to a quasi- “tragedy of the commons”, he said, referring to an economic problem in which every individual has an incentive to consume a resource but at the expense of every other individual. Ill-advised restrictions have led to traffic congestion, disruptions to the industrial chain and the inability of employees to return to work, Lou said. Why is China’s inflation rate low compared to the US, Europe and Britain? “It has a significant adverse impact on the economy and all participants are hurt,” he said. Lou said the use of public resources should be tightened to deal with the problem. For the first time, Beijing last week circulated a notice criticising three cities by name for using too stringent control measures at some checkpoints. Some Chinese provinces and cities have lifted or relaxed mandates requiring proof of negative coronavirus test results after the National Health Commission stressed that Covid-free regions should be cautioned on excessive mass testing. Authorities have also rolled out support measures to mitigate disruption to businesses and stabilise employment. Lou expected China’s economic indicators to recover further in June, after the slowdown eased moderately in May. While inflation has become a buzzword in the West, it is not a huge headache for Beijing, as China is in a different part of the economic cycle and consumer demand remains weak, Lou said. “Although [China] has the pressure of imported inflation, the pressure is mainly digested in various aspects of the industrial chain due to insufficient final consumption,” he said. Premier warns of ‘complicated, grim’ outlook for China’s job market Lou, who is now director of the Foreign Affairs Committee of the Chinese People’s Political Consultative Conference (CPPCC), criticised both the US Federal Reserve and the European Central Bank for moving too late to hike rates The rapid policy tightening to curb inflation would undermine the global economic recovery and may lead to defaults on foreign debt and financial crises in developing countries, he said. But he added China would not be “hit too hard”, citing the country’s well-performing large financial institutions, opening of the financial sector, more mature stock market and small-scale foreign debt.