China’s zero-Covid strategy affecting its economic slowdown

On Monday, an economist warned that China’s economic slowdown would get worse as the country forms its zero-Covid strategy.

Senior emerging markets economist at Commerzbank, Hao Zhou, said that in his opinion, domestic demand would be under pressure if China remained to follow its zero-Covid strategy.

He also told CNBC’s “Squawk Box Asia” that it is less probable that China loosen this kind of policy soon. Therefore, the economic activity will remain to slow down in China in the next couple of quarters. Many Asian countries adopted an aggressive method to get rid of coronavirus inside their countries. However, they had increasingly abandoned that strategy after the spread of the highly infectious delta variant when lockdowns were less effective in controlling the virus.

The zero-Covid strategy involves extensive testing, strict lockdowns, heavily controlled borders, quarantine mandates, and advanced contact tracing systems. Unlike some of its neighboring countries, China insisted on this approach. For example, after Halloween night, visitors needed to take Covid tests to exit from Shanghai Disneyland.

China’s slowdown amid energy crisis

China’s economic growth is experiencing a major slowdown as a severe energy crisis hits production, pulling the industrial activity.

At the same time, indebted Evergrande remains in the attention of the government attempting to deleverage the sector. After that, other Chinese developers started to worry about the situation, which resulted in delayed payments. According to Moody’s estimates, the real estate industry (with some other related industries) estimates about a quarter of China’s GDP.

According to a Reuters poll of analysts, the economy only increased 4.8% in the third quarter, missing a 5.3% expansion expectations. That’s a sharp fall from a 7.8% expansion in the previous quarter.

A professor of trade policy at Cornell University, Eswar Prasad, said that the government would put some targeted measures in place with the economy slowing sharply. That could include monetary policy measures while trying to target more productive and innovative parts of the economy. On Monday, Prasad told CNBC’s “Street Signs Asia” that Beijing faces some complex balancing acts challenges. He said it is difficult to make the economy less dependent on the industrial sector while maintaining decent growth. In his opinion, squeezing the property sector while trying to maintain growth is not easy.

This year, China has suppressed its tech giants, while regulators focused on squeezing rules around data protection, unfair competition, and other issues.