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The current coronavirus resurgence in China presents a downside risk to the country’s economic recovery due to stricter containment measures amid the government’s zero-tolerance approach.
The risk of virus contagion in China looms, as seen in the latest data from China’s National Health Commission. The city of Xuchang has reported a spike in cases. There have also been cases reported in other cities across the same province, including Zhengzhou, Luoyang and Zhoukou. At the same time, the situation in Xi’an seems to be improving as new cases dipped compared to end December.
China’s port of Ningbo, the third-busiest in the world, is facing disruptions due to truck entry restrictions and suspended freight operations, on the back of roadblocks in other parts of the city.
These delays and backlogs could exacerbate the inflation in shipping costs as well as exert pressure on export volumes. However, China is unlikely to budge from its current stance.
Previous infection clusters in the provinces of Jiangsu and Hebei were terminated after 30 to 40 days of mobility curbs and lockdowns, reinforcing belief in the effectiveness of such measures. It is likely China will maintain its stance at least until the Beijing Winter Olympics are completed in late February.
However, there are trade-offs as the current zero-tolerance measures require China to lift its countercyclical economic policy stance. The jobless rate may continue to rise in the coming weeks.
The employment sub-index in the non-manufacturing PMI registered its worst performance in the final quarter of calendar 2021. In addition to monetary policy easing, Premier Li Keqiang has pledged to intensify the implementation of tax and fee cuts to ease pressures on Chinese businesses.
In ANZ Research’s view, the overall policy direction has shifted to growth stabilisation. Given the latest COVID outbreak, further policy support is expected.
Raymond Yeung is Chief Economist Greater China & Zhaopeng Xing is a Senior China Strategist at ANZ
This is an edited excerpt from the ANZ Research report ‘China: tough trade-offs in the fight against COVID-19’, published January 6, 2022. Click to read the full document.
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