On Thursday, China reported record-high COVID-19 infections, with cities across the country imposing localized lockdowns, mass testing, and other measures that are fueling frustration and dimming the outlook for the world’s second-largest economy.

Despite recent more targeted measures, the resurgence of infections nearly three years after the pandemic began in the central city of Wuhan casts doubt on investor hopes for China to ease its rigid zero-COVID policy soon.

The restrictions are affecting both locked-down residents and factory output, including the world’s largest iPhone plant, which has been rocked by clashes between workers and security personnel in a rare display of dissent.

“How many people have the savings to support them if things continually stay halted?” asked a 40-year-old Beijing man surnamed Wang who is a manager at a foreign firm.

“And even if you have money to stay at home everyday, that’s not true living.”

This week, the streets of Chaoyang, the capital’s most populous district, have become increasingly empty.

Sanlitun, a high-end shopping district, was almost silent on Thursday, save for the whirring of delivery riders ferrying meals for those working from home.

Brokerage Nomura reduced its China GDP forecast for the fourth quarter to 2.4% year on year from 2.8%, and reduced its full-year growth forecast to 2.8% from 2.9%, both of which fall far short of China’s official target of about 5.5% this year.

“We believe re-opening is still likely to be a prolonged process with high costs,” Nomura wrote, also lowering its China GDP growth forecast for next year to 4.0% from 4.3%.

China’s leadership has maintained zero-COVID, President Xi Jinping’s signature policy, even as much of the world tries to coexist with the virus, claiming it is necessary to save lives and keep the medical system from becoming overburdened.

Recognizing the pressures on the economy, the cabinet said China would use timely cuts in bank cash reserves and other monetary policy tools to ensure adequate liquidity, according to state media on Wednesday, hinting at a reduction in the reserve requirement ratio (RRR).

Concerns about record-high domestic daily COVID-19 cases overshadowed optimism from fresh economic stimulus, and China stocks fell on Thursday, missing out on a two-month high in global stocks.

The 31,444 new local COVID-19 infections on Wednesday broke a record set on April 13, when Shanghai’s commercial hub was crippled by a city-wide lockdown of its 25 million residents that would last two months.

This time, however, large outbreaks are numerous and widespread, with the largest in Guangzhou and southwestern Chongqing, though hundreds of new infections are reported daily in cities such as Chengdu, Jinan, Lanzhou, and Xian.

According to Nomura, more than a fifth of China’s GDP is under lockdown, which is larger than the British economy.

“Shanghai-style full lockdowns could be avoided, but they might be replaced by more frequent partial lockdowns in a rising number of cities due to surging COVID case numbers,” its analysts wrote.

While official case counts are low by global standards, China is attempting to break down every infection chain, a more difficult task as China faces its first winter fighting the highly contagious Omicron variant.

China has recently begun relaxing some rules regarding mass testing and quarantine in order to avoid blanket measures such as city-wide lockdowns.

Instead, cities have used more localized and frequently unannounced lockdowns. Many residents in Beijing reported receiving notices about three-day lockdowns of their housing compounds.

On Thursday, the far northeastern city of Harbin declared some areas to be under lockdown.

Many cities have resumed mass testing, which China had hoped to reduce as costs rose. Others, such as Beijing, Shanghai, and the Hainan island resort city of Sanya, have restricted recent arrivals.

The central city of Zhengzhou, where workers at the massive Foxconn factory that manufactures iPhones for Apple Inc protested, announced five days of mass testing in eight districts, becoming the latest to reintroduce daily tests for millions of residents.

A sharper-than-expected slowdown in China, which is hurting domestic demand in particular, would have repercussions in countries such as Japan, South Korea, and Australia, which export hundreds of billions of dollars in goods and commodities to the world’s second-largest economy.

(Adapted from Reuters.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability