It is estimated that nearly 400 million people are under some form of lockdown in China as officials try to stem the fast-moving Omicron outbreak that has begun to weigh on the world’s second-largest economy.
Hundreds of thousands of people have been sent to isolation facilities in China and millions more have been asked to stay at home. Officials in dozens of cities have shut down normal daily life across the country in a race to track and trace the virus and stem the worst outbreak in China since the start of the epidemic.
Japan’s Nomura Bank estimated that 373 million people in 45 cities are currently under some kind of lockdown, about a third of the population, which equates to about $7.2 trillion in annual gross domestic product.
It’s part of a pandemic strategy that is increasingly at odds with China’s economic growth forecast – a strategy that has prompted economists and even the country’s prime minister to sound the alarm.
Experts are beginning to warn that China’s 5.5 percent economic growth target for 2022 is now unrealistic because much of everyday economic life has come to a halt. Chinese Prime Minister Li Keqiang alerted local officials to the growing economic cost of each outbreak of the novel coronavirus on Monday, urging authorities to strike a balance between epidemic control measures and the need to encourage growth.
“It is necessary to coordinate epidemic prevention and control, and economic and social development,” Mr. Lee said, according to state media.
China has reported more than 350,000 cases of the virus transmitted locally since the disease last emerged in March. While that may not seem like a large number for any country that has faced an outbreak of the highly contagious Omicron variant, China is still pursuing a strategy aimed at eliminating the virus completely, driven in part by concerns about an older, unvaccinated population. There are still about 40 million people over the age of 60 who have not received the Covid vaccine.
China’s response to the latest outbreak is beginning to affect the world’s global supply chain, with factories that make iPhones, electric cars and semiconductors forced to shut down operations. Some critical components cannot be trucked from ports to factories due to roadblocks and stringent COVID testing requirements.
Pegatron, Apple’s main producer of iPhones, said this week that two of its factories in China have halted production “in response to Covid-19 prevention requirements from local governments.” German auto parts maker Bosch and car maker Tesla are among other global companies that have had to suspend operations as truck drivers have to show negative test results within 48 hours to enter cities like Shanghai.
In some places without any cases reported, officials put up roadblocks, prompting the State Council, China’s cabinet, to tell local authorities this week not to obstruct major roads, ports and airports.
Efforts to prevent the outbreak are creating such a problem that economists have revised their forecasts for China’s economic output this year. One economist went so far as to predict the possibility of China entering a recession in the coming months.
Ting Lu, chief China economist at Nomura, said Beijing has prioritized a zero-tolerance policy on the coronavirus and the outbreak.
“The problem is that when you set these kind of policy goals, local governments are going to be competing with each other,” he said. The result of this competition is that local governments will escalate their epidemic control policies in order to ensure that they do not risk outbreaks of the disease that are difficult to control. For example, officials in Guangzhou, a city of 15 million people, began conducting citywide testing after discovering 20 local cases last week.
“If all local governments were to do it this way, the entire economy would be in trouble,” Mr. Lu said, adding that “the whole system would amplify the zero-Covid strategy.”