China's Zero-COVID Policy Stifling Economic Growth: PIIE
The Chinese leadership has tweaked the lockdown policy, but only on the margin, such as earlier and narrower lockdowns combined with more targeted mass testing. Local authorities in China have continued to impose strict mobility restrictions during outbreaks.
Photo Insert: The lockdowns have done great damage to China's economy.
The social and economic costs of maintaining zero-COVID are mounting, deepening a general sense of uncertainty in the economy, and hurting consumption and investment, Tianlei Huang wrote recently for the Peterson Institute for International Economics (PIIE).
The Chinese economy is in its worst shape since early 2020 after barely expanding in the second quarter of 2022 from the same quarter in 2021. In quarter-over-quarter terms, the economy shrank by 2.6 percent.
Given the meager growth in the first half of this year, it must grow at 7 to 8 percent in the second half to achieve the 5.5 percent full-year growth target, which is obviously out of reach.
Acknowledging this challenge by implication, the recent Politburo meeting deemphasized the growth target and instead called for “striving to achieve the best possible growth results.”
Some analysts agree that US House Speaker Nancy Pelosi’s visit to Taiwan gave Beijing an opportunity to distract the public’s attention from the lockdowns and economic challenges at home with all-out military exercises around Taiwan.
In a world of surging inflation, China’s price increases are moderate, reflecting poor consumer demand. To revive the economy, the government is resorting to its old playbook by spending more on infrastructure, which could have some positive impact.
But the hard truth is that the lockdowns have done great damage to the economy, and greater infrastructure spending will do little to revive downstream industries and services that have been depressed by the lockdowns.
Unemployment—especially among migrant workers and young people—in recent months has been alarming. The months-long lockdowns in Shanghai and elsewhere crippled major migrant employers in services.
Many migrant workers are in dire need since no work means no income at all for most migrant workers who are not enrolled in social insurance programs. Youth unemployment rate hit a record high of 19.3 percent in June 2022, much worse than in previous graduation seasons.
This year the job market is particularly competitive for young Chinese graduates given a record 10.8 million new college graduates are entering the labor market.