China has eased 'zero-Covid' rules in what was seen as a first step toward reopening but cases are spreading as restrictions are loosened. Photo: Screengrab / BBC

China’s second quarter economic growth is expected to be slower than the first quarter as a growing number of Chinese cities and districts are locked down amid Covid-19 outbreaks, now including areas of the capital Beijing.

People in the Chaoyang district, a central business district in Beijing, were ordered on Monday (April 25) to avoid going out as dozens of people infected with Covid-19 have been discovered in recent days.

Districts that are home to 16.4 million people are still under lockdown in Shanghai, a city of 28 million. China’s largest commercial center recorded 19,455 infections on Sunday, compared with 21,058 cases on Saturday. More than 200 new cases were identified outside quarantined facilities each day.

Shanghai announced on Monday that 51 people, with an average age of 84, died from Covid on Sunday, up from 39 deaths on Saturday.

With Shanghai and many other Chinese cities locked down, it will be difficult for China to achieve its full-year GDP target of 5.5% for 2022, economists said. The policy support unveiled by the central government and the People’s Bank of China (PBoC) should help to cushion the impact, but is unlikely to give the economy a sustainable boost, they said.

Shanghai has been locked down since March 28 after thousands of Covid-19 cases, mostly asymptomatic, were reported. On April 19, the Shanghai government decided to relax lockdown measures in three districts to grant 4 million people more freedom of mobility.

At present, 11.9 million people in 16,650 closed-off management areas cannot leave their homes or workplaces in Shanghai, while 4.5 million people in 13,304 restrictive control areas are not allowed to leave their areas. The remaining 7.9 million people in 28,075 prevention areas can walk on the streets but they must avoid public gatherings.

A healthcare worker wears full protection gear in Shanghai on March 13, 2022. Photo: Xinhua

With widespread reports of food shortages, price gouging and mismanaged quarantine centers in Shanghai, Beijing residents have rushed to panic-buy groceries after the capital city’s government announced 14 closed-off management areas and 14 restrictive control areas in Chaoyang district on Sunday.

The government said everyone in the district must have a PCR test on a daily basis from Monday before they travel to work. All sports and cultural activities in Chaoyang were canceled from Saturday.

Yang Peipei, deputy chief of the Chaoyang district government, said some companies in the service sector would be ordered to shut down temporarily. Yang said each of the employees in these affected companies would be compensated 100 yuan (US$15.2) per day for up to 21 days, while each affected company could claim up to 100,000 yuan from an insurance scheme jointly launched by the government and the People’s Insurance Company of China.

Yang said residents in Beijing should not be overly concerned about food supplies as key supermarkets had boosted their inventories, while the government had already set up a reserve. She said people who spread rumors and raised food prices would be punished.

However, some media reported that vegetables were already sold out in supermarkets in Chaoyang district, as well as in nearby Tongzhou district. People also failed to find fresh food on e-commerce platforms, the reports said.

On Saturday, Zhengzhou in Henan province announced a lockdown of the entire city for seven days to launch a mandatory testing scheme. Taiwan’s Hon Hai Precision Industry Co Ltd said the Zhengzhou-based factory of its unit Foxconn, which assembles iPhones for Apple Inc, would maintain normal production despite the Zhengzhou Airport Economic Zone’s lockdown.

The local government in Yantai in eastern China’s Shandong province said Monday it recorded 36 Covid cases on Sunday. It said it had identified the BA.2.3 Omicron variant, which is highly infectious, after an analysis of 16 Covid samples in the city. Local officials said the coronavirus could have been spread by asymptomatic patients in the city for some time.

How many Chinese people are now under lockdown, and the impact the lack of mobility will have on the economy, is a matter of analytical debate.

About 373 million people in 45 Chinese cities were under some kind of lockdown, the Japanese bank Nomura said in a research report on April 15. At least 30 million people in 22 Chinese cities were still being locked down, reported on April 18, citing a different definition of lockdowns.

Nobody knows how long the lockdown in Shanghai will last. Photo: WikiCommons

“China’s GDP for the first quarter of this year came in much stronger than expected while activity slowed in March, reflecting the initial impact of the Covid-19-related restrictions,” Sophie Altermatt, an economist at Julius Baer, said in a research note. “The negative impact on economic activity will likely be more notable in April.”

“If the major outbreaks can be contained and local restrictions eased in the next few weeks, activity might gradually normalize in May,” Altermatt wrote, adding that Julius Baer has downgraded its second-quarter GDP growth forecast to 4.1% year-on-year, but maintained its full-year growth target at 4.7%.

She said it was unlikely that the policy support recently unveiled by the central government and the PBoC could give a significant boost to the Chinese economy, while more risks would emerge if the Covid-19 outbreaks and restrictions lingered longer.

“Despite the recent geopolitical uncertainty and the Omicron outbreak which has triggered strict mobility restrictions, China’s GDP growth in the first quarter of 2022 reached 4.8% year-on-year,” said Alicia García-Herrero, chief economist for Asia Pacific at Natixis.

“However, this growth rate masked a very large difference between the positive first two months and March.”

García-Herrero said the most significant impact of the recent Covid shock was on consumption. She said retail sales collapsed in March with a 3.5% year-on-year decline, compared with 6.7% growth in the first two months of 2022.

She also said China’s investment decelerated in March from the first two months of this year, while exports also slowed.

“When focusing on the tougher environment for March and the lack of a very large stimulus so far, we find it not easy for the Chinese economy to achieve the 5.5% growth target announced during the two sessions in Beijing,” García-Herrero said.

Local authorities deliver rapid test kits to a resident in Shanghai on April 3, 2022. Photo: Xinhua

“The duration of the current Omicron wave will be key to estimate how much the Covid shock will impact the economy in 2022.”

Meanwhile, the Shanghai Composite Index, the benchmark of the A-share markets in Shanghai, fell 5.1% to close at 2,928, below the psychologically important 3,000 level, on Monday.

The CSI 300 Index, which tracks 300 stocks listed in Shanghai and Shenzhen, also closed down 4.9% to 3,814, the lowest level in two years.

Analysts said the markets dropped after the PBoC on Monday allowed the onshore yuan to depreciate to its weakest level in 17 months on concerns about rising capital outflows from China. They said investors were also worried by the prolonged lockdowns in Shanghai and Beijing’s Chaoyang district.

Read: Big Tech tagged for Shanghai lockdown food price gouging

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