As NZ officially moves out of epidemic status this week, President Xi Jinping doubles down on China's zero-Covid strategy. Prof Siah Hwee Ang examines what this means for trade.
Analysis: Masks are pretty much off in New Zealand—a visible sign we’ve entered the “post-pandemic” era. But in China, where Covid-19 started, life remains dominated by the virus.
China’s borders have barely opened and lockdowns of cities continue as the country continues its zero-Covid strategy. There’s no certainty for anyone travelling into or out of China that they’re guaranteed a two-way trip.
So why are lockdowns still needed in China?
The short answer lies in the extent to which health issues will escalate if Covid-19 is allowed to spread, given the number of unvaccinated and elderly people in the country and the efficacy rates of the vaccines being administered.
However, the pandemic has taught us more than a few lessons about the dependencies between nations and many are banking on China getting back to normality soon.
Foreign businesses working with and in China will tell you about the problems they’ve encountered in the past few years. Russia’s invasion of Ukraine has added more uncertainties to the international landscape.
From a trade perspective, China initially weathered Covid-19 fairly well: 2020 saw a rise in demand for its exports as economies scrambled to fill supply chain gaps and respond to changes in production as a result of their own lockdowns.
China remains the world’s largest trading nation and its GDP continues to grow—by 2.2 percent in 2020 and 8.1 percent in 2021. Gross domestic savings are high, at 45 percent of GDP, and the banking system has accumulated assets of more than US$50 trillion.
But economic pressures are mounting.
When times are bad, walls go up
It’s fair to say China has a lot on its plate at the moment. Growth is expected to slow this year, which the World Bank largely attributes to the country’s prolonged lockdowns.
The property market is also limping along and the pandemic has taken its toll on employment. This means consumption, and especially conspicuous consumption, will slow.
External factors may start to affect exports as well. When times are good, every player wants to trade. But when times are bad, the walls can go up. Witness the push by some economies to be more self-sufficient in food, energy, and technology to limit the economic shocks from future global disruptions.
Then there’s the so-called “trade war” between China and the US, though trade between the countries continues to grow despite tariffs slammed on China imports by the US. It seems the time lag between the announcement and implementation of the tariffs has ensured businesses have enough time to stock up!
While the trade war may have generated less heat since Covid-19 emerged, it seems it’s far from over. The US recently announced measures to limit China’s access to advanced computer chips and chip-making equipment. The new rules will ban US companies, and foreign players that use the US tech, from selling it to China.
The move is apparently to stymie China’s military use of the chips, though a cynic may argue it also reflects the United States’ desire to maintain its lead in this area of technology.
So what can we expect for China in 2023?
China's evolution is inevitable
It’s inconceivable that China will not be opening up a lot more soon, not least in order to attract investment. China’s economic model remains reliant on investment, which has slowed since the pandemic.
While President Xi Jinping has attracted criticism for sticking to his zero-Covid strategy, his position as leader looks secure and the expectation is he will hold the role for at least another five years.
In the short term, the zero-Covid strategy is likely to remain. As the World Bank observes, the challenge facing the country will be to balance its Covid-19 response with its aspirations for growth.
To date, China’s government has been attempting to compensate for the slowdown by increasing public spending and deploying other policies to ease economic pressures, particularly in the property sector.
But this approach won’t be workable long term and China is likely to find it’s dependent on the outside world for investment, just as much as the outside world has become dependent on China for trade.
One thing is certain: China’s evolution is inevitable.
