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“Whether China grows above 3%, 4% or even 5% this year matters in the short term to businesses and workers affected by the extent of economic activity, but what really matters to the underlying economy is the intense degradation in the quality of Chinese growth this year. Like in 2020, growth will be driven mainly by the non-productive investment and government spending Beijing has wanted to reverse for years, and very little by consumption and business investment. And this means, again as in 2020, that it will be accompanied by a surge in the country’s debt burden.”
“China’s zero-Covid policy will comprehensively slow down manufacturing, retail, and service sectors and increase unemployment. Some impacts are obvious, but others are hidden, and overwhelmingly born by smaller businesses. Moreover, for innovation-driven sectors, not all R&D work can be done from home without equipment. This impact will ultimately trickle down to other parts of the economy. The silver lining is that, given the importance of the economy to legitimacy, the government has a “dynamic zero-Covid” policy that does not really pursue zero cases. Instead, they target clusters of outbreaks and allow local flexibility in maintaining the operation of the economy.”
“In 2020, the Chinese state focused on stopping the virus, ending up with the strongest performance by a large economy. 2021 was similar. With omicron’s immense transmissibility leading to widespread and enduring lockdowns, the 2022 GDP target of 5.5% is in tatters. Despite initial reluctance coming from the desire to deleverage, Xi has called for “all out” stimulus that rehashes the investment and emissions-heavy decisions that have helped China’s economy through previously lean moments. In the end, I expect to hear that below-target growth was justified by China’s low death rate.”
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