Xi facing crisis as zero-Covid obsession casting shadow on Chinese economy

Nathan Sheets says China 'well below' their growth target

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On Friday, China is expected to report that gross domestic product (GDP) grew just one percent in the second quarter, with full-year growth forecast at four percent – far short of Beijing’s official target of around 5.5 percent for 2022.

The figures, from a Reuters poll, reflect the impact Xi’s “dynamic-zero” coronavirus policy has had on China’s economy.

While the country has been tweaking its strict curbs, it shows no sign of backing off from the ever-limiting approach that sees a nation of 1.4 billion tied to their homes as soon as a case is confirmed in their suburb.

In addition to a sharp lockdown-induced slowdown, growth in the world’s second-largest economy has also been slowed by a struggling property market and uncertain business and trade relations.

International groups have been vocal about the costs of zero-Covid, with some warning of plans to invest elsewhere.

Ken Cheung, chief Asian FX strategist at Mizuho, wrote: “The rest of the world is reopening and the zero-Covid policy in China will probably drive export orders and production to other countries during the supply-chain normalization.”

Joerg Wuttke, president of the EU Chamber of Commerce, said: “The world is not going to wait for China to improve her herd immunity.”

Mr Wuttke, who has suggested to Premier Li Keqiang that China set up vaccination tents next to its now-omnipresent testing hubs, told Reuters: “The curbs can only be lifted after the country has finished vaccinating the elderly. This might not be before fall 2023.”

China has jabbed nearly 90 percent of its 1.41bn population and given around 56 percent of them a booster shot. Still, 30 million elderly Chinese citizens are unvaccinated.

The spread of the BA.5 variant, which experts have said could be the most infectious and transmissible of all yet, is only complicating matters for the Chinese – and, inevitably, for Beijing’s economic outlook.

As the rest of the world — hugely helped by tremendous vaccination efforts — tries to coexist with Covid, Beijing points to the lives saved by its tough measures and argues keeping them is worth it until no Chinese resident is at risk of dying from the virus.

During a visit to Wuhan, the city where COVID-19 was first detected, late last month, the president said he would stick to his policy even if it means damaging the country’s economy.

He said: “We would rather temporarily affect a little economic development than risk harming people’s life safety and physical health, especially the elderly and children.

“Our country has a large population. Such strategies as ‘herd immunity’ and ‘lying flat’ would lead to consequences that are unimaginable.”

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This week, Shanghai’s 25 million people were subject to more mandatory city-wide testing, and chances are, without a roadmap out of zero-Covid in place, such scenarios will be commonplace well into 2023, too.

But fatigue among the population could see widespread social unrest turning into protests or riots.

With the next Communist Party congress just months away, the question is – can Xi reach the event politically unharmed?

The congress, held every five years, is a key gathering in Chinese politics.

This year’s edition is particularly important for Xi, as it will see him potentially become “president for life”.

Former Chinese leader Deng Xiaoping introduced a two-term limit to prevent the rise of another figure like Mao Zedong, who ruled the country for nearly three decades.

But that limit was dropped in 2018 to allow Xi to remain in power for as long as he chooses.

The narrative in Beijing, which revolves around “defeating” Covid and “winning the war against the pandemic”, suggests Xi is fixated on proving a political victory rather than finding a sustainable solution to a health crisis that in December 2019 changed Chinese people’s lives.

It is understood he will want to reach the Communist Party congress in a position to prove he is deserving — be it by defying the rest of the world’s approaches or by fighting to beat a highly-transmissible virus — of launching a rare third term in office.

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