Asia Times
China’s Covid policy to be year’s largest economic shock

China's "zero Covid" policy could have a greater economic impact than the Ukraine war

Alicia Garcia Herrero, Senior Fellow at Bruegel and chief economist for Asia-Pacific at Natixis, has recently published an article in the Asia Times where she argues that China's "zero-Covid dynamics" policy could have a greater impact on the global economy than the ongoing war in Ukraine.

Key highlights of the article:

  • China is the world's second largest economy and has an economy 10 times larger than Russia's. While the "zero Covid" policy of Beijing and the Shanghai blockade is not as worrisome to Western observers as the war in Ukraine, its negative consequences for the global economy could be considerably greater.

  • This policy involves drastic restrictions on mobility, including total closures that have been imposed in several cities, Shanghai being the largest, which together account for 40% of China's gross domestic product. Half of China's highways cannot be used, and ports operate inefficiently.

  • The consequences on China's own economic growth have already been felt in the latest March data, especially in the service sector, but increasingly also in manufacturing, as some companies decided to close their doors temporarily.

  • A prolonged disruption of China's manufacturing industry would be a major shock to the global economy, as China exports up to one-third of the world's intermediate goods. This is in addition to potential international transportation problems, which are already becoming apparent in further increases in shipping costs.

  • Chinese borders have been closed since the start of the pandemic in January 2020. This has caused a dramatic reduction on physical exchanges between China and the rest of the world, but also an increasing lack of mutual understanding that won’t be helpful for the future of globalization and international cooperation.

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