China’s zero-Covid has shaken confidence in supply chains

China will probably reopen by the end of March 2023, economics professor says

Li Daokui, a Mansfield Freeman professor of economics at China’s Tsinghua University, said that while Chinese authorities may gradually ease restrictions in March, Covid-free policies are starting to hurt. global confidence in the country’s industrial supply chains.

In the short term, the supply chain will be mostly unaffected as factories are still operating even with lower consumption due to the lockdown, Li, a former adviser to the People’s Bank of China, said in a statement. protracted interview with “”Asian Squawk Box” on Wednesday.

“However, the long-term impact may be already taking shape, which is that the international economic community is thinking hard about the stability of supply chains in China,” he said.

“People used to think that China was the most solid, safest, most stable source of supply. Now they are thinking of rebuilding their own supply backup chain in their own country or region. them. So that’s the current situation.”

Last weekend, Protests broke out across China in a rare expression of frustration about China’s Covid-free policy and prolonged lockdowns. There were also student protests at Li’s campus, Beijing’s elite Tsinghua University.

The unrest comes as infections increase, prompting more local Covid control measures, although central government policy changes earlier this month that has raised hopes of gradual easing.

Rare protests erupted across China over the weekend as residents expressed frustration over China’s Covid-free policy and prolonged lockdowns.

Kevin Frayer | Getty Images News | beautiful pictures

Nearly three years of control have dragged the economy down with many economists forecasting China’s GDP growth below 3%, much lower than the 6% to 8% annual growth of previous years. ..

However, the number of infections started to decline earlier this week while Beijing pushed for more Vaccination for the elderly, that is the key to reopening. Opening up is at the top of Beijing’s agenda, Li said.

“Well, I believe the authorities are thinking about this… and my estimate is that by the end of March, [at] In the latest, the policy will have significant changes which are very good… that is to focus on protecting the elderly, while, at the same time, opening the door to the rest of the population,” Li said.

While Beijing may consider importing and using a Western mRNA vaccine – which has a higher effectiveness rate – Li said the Chinese authorities are more likely to use other controls. , such as fence lock.

China says it has made progress in vaccinating the elderly

China has reached its peak with its Covid-zero policy and Beijing will have to change tactics.

“People are complaining about everything but the only thing on everyone’s mind is the no Covid policy. And people from all walks of life are seething with discontent about the continuation of this policy,” Li said.

“A major and philosophical reason is that the no-Covid policy is designed to combat [the] virus, that was three years ago but now the virus has changed.

“During the war, [if] Your enemies have changed, you must change your tactics.”

“So I’m optimistic that the no-Covid policy will see a major, gradual and substantive change. Once this changes, many of the issues you mentioned, the economic ones. In fact, people’s emotional problems… will gradually be mitigated or completely resolved.”

If China abandons its Covid-0 policies, Li said the country will be able to return to a “miracle” growth rate of between 5% and 6%, which he says is growth appropriate to its size. current Chinese labor market.

Protesters hold up a white paper against censorship as they march during a protest against China’s COVID-19 zero measures on November 27, 2022 in Beijing.

Kevin Frayer | Getty Images News | beautiful pictures

But opening up alone is not enough as Beijing will also need to tackle the struggling real estate sector and help indebted local governments refinance, Li said.

The first step, however, is that China can quickly restart its economy through infrastructure projects and investments.

“Well, in the short term, very short term… the most important driver for stabilizing the economy is still investment in infrastructure,” Li said, adding that there are many projects ready to go. can be profitable. the economy an immediate boost.

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