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Zero COVID, Zero Output, Zero Options, Zero Future
Lockdowns Are The Death Of A Thousand Cuts For China's Economy
In the Chinese execution method of lingchi (凌遲)—”the death of a thousand cuts”—the prisoner was slowly put to death by a series of cuts and gradual dismemberment.
China's “Zero COVID” lockdowns are slowly killing China's economy in much the same way, with each new lockdown slicing off yet another bit of economic output. In addition to the tourist destination of Santa in Hainan province, the provincial capital of Haikou plus at least two other cities have been placed under lockdown after cases of COVID-19 were detected.
In the southern province of Hainan, currently the worst-hit Chinese region, two cities, Dongfang and Chengmai, with a total population of around 900,000, said on Friday they would add days to the lockdowns on their residents, prolonging what were previously scheduled for three to four days to around a week.
Hainan's provincial capital Haikou on Friday put its 2.9 population in a lockdown between 0700-1800 local time, following similar restrictions that covered main hours on Monday, Wednesday and Thursday.
Several millions in other cities in Hainan, including Sanya, were under lockdown without clear dates of when the curbs would be lifted.
Lather, Rinse, Repeat
This is by now an almost formulaic story: COVID-19 cases are detected, one city shuts down, then another, then a province, then multiple provinces. In this latest cycle, Sanya was quickly joined by Yiwu in lockdown, disrupting factories in the manufacturing hub.
Now the lockdowns are expanding into western China, with restrictions announced in Lhasa, in Tibet, as well as in multiple cities in Xinjiang Province.
In China's western region of Xinjiang, three cities in the Aksu area from Thursday allowed employees to leave their homes for work while restricting everyone else to necessary movements only. It is not clear when the measures will be lifted.
Key districts in Xinjiang's capital Urumqi, meanwhile, have been in a five-day lockdown starting on Wednesday.
While not as severe as this past spring's restrictions in Shanghai, the lockdowns are following that same pattern of slowly spreading.
Then the lockdown mania spread to Beijing. This time the lockdowns are expanding west—spreading, closing down businesses, shutting down portions of an already battered economy.
The Yiwu lockdown in particular is likely to have significant impact on the world’s Christmas shopping. Roughly two-thirds of Christmas-related products for the entire world are made in Yiwu, making this period their peak production time ahead of the holiday season.
“Now is peak production season, and the current suspension makes deliveries very difficult,” said one local resident who works for a Christmas decoration manufacturer and exporter but declined to be named.
“We make prototypes [of the products] at the beginning of the year and deliveries start in March, most of them end in mid-October. As of now, we’ve completed 70 per cent of the orders, so it’s in the semi-finishing stage.”
The Chinese media, as is to be expected, is putting the brave face on the Yiwu lockdown, with officials insisting to China Daily that shipments are not being held up.
Despite disruptions, international freight shipments from Yiwu remain relatively stable. Between Aug 2 and Aug 6, a total of 1,426 twenty-foot equivalent units were shipped overseas through Ningbo's Zhoushan Port and some 20 China-Europe freight trains left for Madrid during the same period, Yiwu officials told a news briefing on Sunday afternoon.
However, it should be noted that the business owner tapped by the Chinese media to illustrate how well Yiwu is coping, is in fact situated an hour’s drive away from the city.
Luckily for Zhang, her factory and office are in the city of Dongyang, an hour's drive from Yiwu, and so are still operating as usual.
“Zhang” is Zhang Dan, whom the article introduced as running a company “in Yiwu”—which sits next to Dongyang, but is not Dongyang.
Apparently, according to the Chinese media, the way businesses are coping with the Yiwu shutdown is by being lucky enough to not be in Yiwu in the first place.
Zero COVID Has Already Taken A Huge Toll
These latest lockdowns and attendant disruptions are coming on the heels of China releasing its absolutely abysmal second quarter economic data, with output down sharply because of COVID, and the country only just barely eking out 0.4% economic growth.
Output contracted by 2.6% between April and June compared with the previous quarter, the statistics bureau said, prompting many economists to revise their predictions for the world’s second biggest economy.
On an annual basis the economy grew 0.4% in the second quarter, the worst since the pandemic-hit first months of 2020, but even that was worse than the consensus forecast by economists of 1%.
The most telling sign of China’s ongoing lockdown-related economic distress: despite global inflation pushing up the prices of oil and most other commodities, China’s imports barely grew at all in the second quarter, barely inching up 0.1%.
Oil imports for the month of July, while almost imperceptibly higher than in June, were still down 9.5% from July 2021, with year-to-date imports declining 4% from the same time a year ago.
Another worrisome trend for China: rising unemployment from the lockdowns.
The statistics bureau also said on Friday that youth unemployment has risen to 19.3%, a trend accelerated by the full or partial lockdowns imposed in major centres across China in March and April, including the commercial capital, Shanghai.
While many of those curbs have since been lifted, and June data offered signs of improvement, analysts do not expect a rapid economic recovery. China is sticking to its tough zero-Covid policy amid fresh flare-ups, the country’s property market is in a deep slump, and the global outlook is darkening.
Output Declines Are Keeping Inflation Low
In what may be a foreshadowing of economic things to come for the US, China’s consumer price and producer price inflation rates have come in below forecasts—primarily due to slumping outputs.
“Factory gate inflation will remain on a downward trajectory throughout the rest of the year amid a further drop in commodity prices, easing supply bottlenecks and a higher base for comparison,” Zichun Huang, China economist at Capital Economics, said in a research note.
In a sign of the slowing momentum, PPI fell 1.3% month-on-month for its first monthly decline since January, with the biggest falls in the price of metals and petrochemicals.
The demand destruction being sought by the Federal Reserve is already happening in China.
Food Price Inflation Accelerating
The one area where prices are rising rapidly: Food.
In July, the main driver of consumer prices was food inflation, which rose 6.3% year-on-year, speeding up from an uptick of 2.9% in June.
Driving the broader food surge were pork prices, which shot up 20.2% year-on-year, reversing a decline of 6.0% in June as production slowed.
Even the Chinese media is unable to paper over the steep rises in food prices.
In July, pork price rose 20.2 percent year-on-year, reversing a drop of 6 percent in June. Prices of fruits and vegetables rose by 16.9 percent and 12.9 percent year-on-year, respectively, NBS data showed.
China is the largest consumer of pork, and the meat is a staple of the Chinese diet. Despite the demand for pork, however, China’s hog farmers have been restricting supply or even exiting the market due to rising costs and falling margins
The monthly gains in prices were attributed to production capacity cuts, farmers holding back pigs from the market and a recovery in consumer demand.
China's pig herd had been contracting in the past year as falling margins pushed some farmers to exit the market or reduce the number of their sows to curb heavy losses.
Despite the rise in food price inflation, the PBOC regards overall consumer price inflation as low and stable, and is continuing a loose money policy in a bid to stimulate economic growth—an agenda that is being stymied time and again by Zero COVID lockdowns, as well as tighter monetary policies elsewhere which threaten trigger further capital flight should China loosen further.
While the PBOC is expected to keep monetary settings loose amid sluggish growth, there are limits on how much it can ease policy due to worries about capital outflows, as the U.S. Federal Reserve raises interest rates aggressively.
The PBOC is therefore likely to rely on more targeted easing to support the recovery, even as consumer inflation tests China’s 3% tolerance threshold.
That means the prospect of a near-term across-the-board interest rate cut is low, given existing global inflationary pressures and interest rate hikes in other major economies, said Bruce Pang, a chief economist at Jones Lang Lasalle.
Meanwhile, COVID Cases Continue To Appear
Yet even as the Zero COVID lockdowns continue to bleed the Chinese economy, cases continue to appear throughout China. Including Beijing and Shanghai, which had only recently emerged from lockdown.
Mainland China reported 1,993 domestically transmitted new coronavirus cases for Aug. 10 - 614 symptomatic and 1,379 asymptomatic - the National Health Commission said on Thursday.
There were no new deaths, keeping fatalities at 5,226. China has confirmed 232,809 cases with symptoms as of Aug. 10, including local transmitted ones and those among arrivals.
China's capital Beijing reported two local cases for the previous day, while financial hub Shanghai and southern technology hub Shenzhen reported zero new local infections.
Zero COVID is having Zero Success at stopping the spread of COVID-19. Yet while China’s officials are trying to avoid a repeat of the humanitarian crisis that was the Shanghai lockdown (which didn’t work at containing the virus then either), they are refusing to abandon the policy.
With evidence of their own economic destruction mounting almost daily, Xi Jinping and the leadership of the CCP simply refuse to even consider any other alternative approach, as other countries which attempted the Zero COVID route—such as New Zealand and Australia—have ultimately conceded was necessary. Even the US CDC is no longer willing to endorse quarantines simply for being exposed to the virus.
Instead, they continue to inflict lockdown after lockdown, cut after cut, economic slice after economic slice, subjecting the whole of China to the slow torture of economic lingchi.