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Analysts on China’s zero-covid strategy and economic slowdown


A worker works on a production line in Shende’s materials workshop in Lianyungang Economic and Technological Development Zone, east China’s Jiangsu Province, Oct. 31, 2021.

Wang Chun | Barcroft Media | Getty Images

China’s economic slowdown will worsen as the Asian giant pushes its zero-covid strategy, an economist warned on Monday.

“If China continues to adhere to its zero-covid strategy, domestic demand will come under pressure in my opinion,” said Hao Zhou, Senior Emerging Markets Economist at Commerzbank.

“But in the meantime, we know that there is no sign that China will be loosening or loosening this type of policy anytime soon. So I think China’s economic activity will basically continue to slow in the next few quarters.” he told CNBC’s Squawk Box Asia on Monday.

Many countries in Asia initially acted aggressively and tried to eliminate Covid within their borders. But they have gradually abandoned that strategy as the highly contagious Delta variant spreads and lockdowns become less effective in controlling the virus.

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The zero-covid strategy usually includes strict bans – even after detecting just one or a handful of cases – extensive testing, tightly controlled or closed borders, and robust systems for contact tracking and quarantine regulations.

Unlike some of its neighbors, China has retained this approach. On Halloween night, visitors to Shanghai Disneyland had to take Covid tests in order to get off. That request came after authorities learned that close contacts of a coronavirus case had visited the park the week before.

China’s slowdown amid the real estate and energy crisis

China’s economic growth has slowed as a severe energy crisis hits production and slows industrial activity.

At the same time, real estate giant Evergrande and its debt burden remain in the spotlight as the government seeks to deleverage the sector. Fears have since spread to other Chinese developers, some of whom have delayed or defaulted on payments. Moody’s estimates that real estate and related industries account for about a quarter of China’s GDP.

According to a Reuters analyst survey, the economy only grew 4.9% in the third quarter, falling short of expectations of 5.2% expansion. That’s a sharp decrease from a 7.9% expansion in the second quarter.

Ten major banks watched by CNBC have cut their full-year forecasts for China’s GDP.

“I think the reality is that the economy is slowing down as much as it is, [the government] will take some targeted action – which could include monetary policy – trying to direct lending to areas of the economy that are more innovative, more productive, “said Eswar Prasad, professor of trade policy at Cornell University.

Beijing is now facing a number of “very difficult challenges” in terms of balancing acts, he told CNBC’s Street Signs Asia on Monday.

“How do you manage to make the economy less dependent on the industrial sector while … trying to maintain decent growth?” the economy? “said Prasad.” And how do you maintain a dynamic economy while government intervention in the economy certainly increases? “

This year, China also cracked down on its tech giants as regulators focused on tightening rules on unfair competition, privacy and more.

– CNBC’s Holly Ellyatt, Evelyn Cheng and Yen Nee Lee contributed to this report.