China anti-virus curbs spur fears of global economic impact

Anti-virus controls that are confining millions of Chinese families to their homes and closing shops and offices are spurring fears of further damage to already weak global business and trade.

The ruling Communist Party promised on November 11 to reduce disruption from its “zero-Covid” strategy by making controls more flexible, but the latest wave of outbreaks is challenging that, prompting major cities including Beijing to close off populous districts, shut stores and offices and order factories to isolate their workforces from outside contact.

On Tuesday, the government reported that 28,127 cases were found over the past 24 hours in areas throughout China, including 25,902 with no symptoms.

China’s infection numbers are lower than those of the United States and other major countries, but the ruling party is sticking to “zero Covid”, which calls for isolation of every case, while other governments are relaxing travel and other controls and trying to live with the virus.

Global stock markets fell on Monday as anxiety about China’s controls added to unease about a Federal Reserve official’s comment last week that already elevated US interest rates might have to rise further than forecast to cool surging inflation.

Investors are “worried about falling demand as a result of a less mobile Chinese economy amid fears there will be more Covid-related lockdowns,” Fawad Razaqzada, of StoneX, said in a report.

China is the world’s biggest trader and the top market for its Asian neighbours. Weakness in consumer or factory demand can hurt global producers of oil and other raw materials, computer chips and other industrial components, food and consumer goods. Restrictions that hamper activity at Chinese ports can disrupt global trade.

Economic growth rebounded to 3.9% compared with a year earlier in the three months ending in September, up from the first half’s 2.2%. But activity was already starting to fall back.

Retail spending shrank by 0.5% from a year earlier in October, retreating from the previous month’s 2.5% growth as cities reimposed anti-virus controls. Imports fell 0.3% in a sign of weak consumer demand, a reverse from September’s 6.7% rise.

Chinese exports shrank by 0.7% in October after American and European consumer demand was depressed by unusually large interest rate increases by the Fed and other central banks to cool inflation that is at multi-decade highs.

Guangdong province, an export-oriented manufacturing powerhouse that is the latest infection hot spot, recorded 9,022 new cases on Tuesday – almost one-third of the national total. That included 8,241 without symptoms.

On Monday, the government of the provincial capital, Guangzhou, suspended access to its Baiyun district, home to some 3.7 million people, following outbreaks there.

Guangzhou announced plans last week to build quarantine facilities for nearly 250,000 people. It said 95,300 people from another district, Haizhu, were being moved to hospitals or quarantine.

The government of Shijiazhuang, a city of 11 million people south-west of Beijing, said factories that want to keep operating must impose “closed-loop management”, the official term for employees living at their workplaces. That imposes extra costs for food and living space.

Businesspeople and economists see the changes in anti-virus controls as a step toward eventually lifting controls that isolate China from the rest of the world. But they say “zero Covid” might stay in place until as late as the second half of next year.

Entrepreneurs are pessimistic about the outlook despite government promises of less disruptive anti-virus measures, according to a survey by Peking University researchers and financial company Ant Group Ltd.

It said a “confidence index” based on responses from 20,180 business owners fell to its lowest level since early 2021.

The ruling party needs to vaccinate millions of elderly people before it can lift controls that keep out most foreign visitors, economists and health experts say.

“We do not think the country is ready yet to open up,” said Louis Loo, of Oxford Economics, in a report. “We expect the Chinese authorities will continue to fine-tune Covid controls over the coming months, moving toward a broader and more comprehensive reopening later.”