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Zero-Covid: Five Charts That Show How Restrictions Are Throttling The Chinese Economy

Protests against pandemic restrictions in China could unleash a new wave of volatility into a global economy already racked by inflation, energy shocks and the war in Ukraine.

The government’s continued reliance on lockdowns, quarantine orders and mass testing to limit the spread of the virus has provoked the biggest protest movement in decades. But there’s little evidence that authorities are willing to diverge from the path they have taken.

As well as prompting social unrest inside China, there are signs that the zero-Covid strategy is throttling the world’s second largest economy – and as one of the key drivers of global growth, the waves of instability emanating from China are likely to be felt elsewhere.

Consumer confidence

China’s GDP is forecast to grow by 3.2% this year, well below the official target of 5.5%. This would make 2022 the slowest year for GDP growth in more than 40 years, excluding the Covid-affected rate in 2020.

On Tuesday, the International Monetary Fund warned this growth forecast might be cut even further.

China retail salesSigns of slowdown are evident on the streets of major cities and in the spending patterns of consumers. In September, retail sales growth declined and a survey of small and medium sized businesses showed that accommodation and catering bore the brunt of this downturn, as a result of extended lockdowns.

Bloomberg reported this week that subway usage in major cities is down as much as 91% on some days.

The unwillingness – or inability – of Chinese consumers to get out and spend is not just reflected in day-to-day purchases. Strict pandemic controls have done nothing to lift demand in a housing market that has been traversing bouts of instability since 2020.

Prices of new-build houses in China At its peak, property and construction accounted for a quarter of China’s economic output, but government efforts to curb speculation and rein in prices have pushed the housing market close to crisis point.

The government has been forced to intervene again, this time to help prop up property developers that are failing to repay debts and complete projects

It’s not yet clear whether these government measures will be enough to inspire confidence in consumers who have already shown a wariness to spend money on apartments that may never get completed.

A factory to the world

For decades, China has played a vital role in global supply chains, and in 2021 close to 30% of the world’s goods were manufactured there. But in October, Chinese exports fell for the first time since May 2020, in part due to weakening international demand.

China’s factory activity has been declining over the last two months. With large sections of the country hit by lockdowns, manufacturers are struggling to attract – and retain – staff.

More than 80% of Chinese manufacturers have faced labour shortages this year, with the country’s Ministry of Education forecasting a shortfall of nearly 30 million workers by 2025.

Chinese exportsAll of this could hamper the ability of Chinese manufacturers to make and export goods to the rest of the world – and lockdown related unrest is already having an effect on the ability of global companies to meet demand.

Shipments of Apple’s iPhone 14 Pro and Pro Max could fall short by up to 20m units as we enter the Christmas period, according to TF Securities analyst Ming-Chi Kuo.

Riots at Foxconn’s factory in Zhengzhou – the single biggest producer of iPhones in the world – were sparked by local lockdowns and disputes over pay and working conditions. Some analysts estimate that worker unrest at the factory could cost Apple up to $1bn a week.

Further lockdowns and unrest could continue to slow production – and as production slows, Chinese demand for the commodities that go into making these manufactured goods wanes as well.

The sheer size of China’s economy and manufacturing sector make it a pivotal player in the global trade in natural resources. The price of copper – a vital component in electronic goods and construction – has fallen over the last six months as China’s output slows.

Price of copperChina is the world’s biggest importer of petroleum and according to some analysts, Chinese demand has the biggest single influence on oil prices. China’s commitment to zero-Covid and concerns over domestic unrest are therefore a major contributor to the cost of crude oil falling to the lowest point since Russia’s invasion of Ukraine.

While this will be welcome news to consumers who have seen the cost of living skyrocket on the back of near record-high oil prices, the broader economic outlook remains hazy.

Price of crude oilChina’s decades long run of growth was powered by a population that traded democratic freedoms for economic prosperity. If protests continue, it could be a sign that this social contract between China’s rulers and its people has begun to fray.

Experts have raised concerns that Xi Jinping’s precedent breaking third term will see ideology and the party’s security, take precedence over economic growth.

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