CALLS FOR CLARITY OVER GROWTH, WAY FORWARD
Academics, advisers want Beijing to state which goals should be priority as they estimate economy has lost trillions of yuan this year due to virus rules
Calls have increased for Beijing to clearly state its priorities regarding conflicting coronavirus management and economic growth goals, with people’s livelihoods coming under pressure amid an estimate that China has already lost about 3 percentage points worth of economic growth this year.
Leading academics and advisers stressed the importance of clarity at a time when the world’s second-largest economy is facing a new round of coronavirus disruptions, with daily infections having already jumped to more than 40,000.
Yao Yang, a professor and dean at the National School of Development and director of the China Centre for Economic Research at Peking University, estimated China’s economy – valued at 114 trillion yuan (HK$124 trillion) in 2021 – had already shed more than 3 trillion yuan so far this year by prioritising its zero-Covid policy over economic development.
“For local governments, the usual thinking must be that epidemic prevention comes first. If it isn’t properly done, they need to take responsibility. But if the economy is not doing well, they are not held accountable as much,” Yao said during a Peking University seminar on China’s economic outlook earlier this month, according to a transcript published on Sunday.
“So, on balance, local governments will inevitably continue to prioritise epidemic prevention.”
Yao has been advocating for Beijing to ease its zero-Covid policy to minimise its economic impact, and has also urged local governments to “consider the feelings of ordinary people more” and use more “targeted measures when it comes to Covid control”.
“Against this backdrop, I think the central government should make a clear statement – not asking for both – and should clarify the priority of work,” Yao added.
“Only then can our economy be expected to recover quickly in the coming months.”
Markets and investment group CLSA last week said the number of cities that had recorded infections accounted for 68.9 per cent of China’s gross domestic product, reaching a new year-to-date high.
Local governments have struggled to strike a balance between bringing the virus under control and following the State Council’s 20-point plan, which mandates a more targeted approach that avoids large-scale lockdowns.
“China’s zero-Covid policies – and the mobility restrictions required to implement them – have weighed heavily on the economy and elevated social tensions,” said Andrew Fennell, head of Greater China sovereigns at Fitch Ratings.
“We expect the authorities will relax the most restrictive elements of current anti-epidemic measures in 2023, such as citywide lockdowns, which have contributed most directly to downside growth pressures,” Fennell said.
“However, a full-fledged policy pivot is not in our baseline, as we believe many restrictions will remain in place due to China’s limited levels of naturally acquired immunity and relatively low Covid-19 booster coverage for the most vulnerable groups of society.”
China’s economy grew by 3.9 per cent in the third quarter, year on year, after growing by just 0.4 per cent in the second quarter.
But with downside risks to the economy in the fourth quarter, Goldman Sachs expects China’s economy to grow by 3 per cent this year, overall. “The central government may soon need to choose between more lockdowns and more Covid outbreaks. The current situation imposes further downside risk to our below-consensus quarter GDP forecast,” Goldman Sachs said on Sunday.
Surveys by Peking University also showed the country’s unemployment situation was deteriorating even as GDP picked up.
Beijing has boosted its fixed-asset investment this year in the form of debt-fuelled infrastructure spending, in an attempt to steady the economy, but former central bank adviser Huang Yiping said the government should also take into account the importance of consumer confidence. “I think consumption should account for a certain proportion of China’s economy,” Huang said at the Caixin Summit earlier this month.
“Right now, consumption is affected by the pandemic, which has put limits on mobility, social interactions and economic activities … and it is [weak] also because of an uncertainty in expectations [concerning policy changes],” added Huang, who earlier urged Beijing to ease its virus policy.
Wang Yong, director of the Centre for International Political Economy at Peking University, has also urged policymakers to review the sustainability of control measures. To press on with the current policy would require a large number of resources from local governments, Wang said on his Weibo account on Saturday.
He also said clashes between workers and security forces at the world’s largest iPhone factory – operated by Foxconn Technology Group in Zhengzhou – could trigger the relocation of manufacturing, while protests could reoccur if strict measures remained.
If the economy is not doing well, they are not held accountable as much
YAO YANG, PROFESSOR