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Top Chinese official warns of zero-COVID policy’s threat to economic growth

May 27, 2022, 9:00 AM UTC

After years of fast-paced growth, China’s economy is showing signs of faltering—and a top government official believes a slowdown in growth could come with a huge price tag. 

At an emergency meeting Wednesday between the central government and thousands of local officials, Chinese Premier Li Keqiang warned that serious consequences were in store for the country’s economy if it could not balance its zero-COVID policy with economic growth targets.

Li’s statements, reported by Bloomberg, differed from the official state media’s account of the meeting, which struck a decisively softer tone on the economy’s outlook. China’s annual growth target of 5.5% is increasingly slipping out of reach, Li reportedly said, adding that maintaining economic stability and preserving growth should remain the primary focus of local government officials.

While most Western economies shrank during the pandemic, China’s showed no signs of slowing. The country’s GDP grew by 8.1% in 2021 as tight border controls and low-to-nonexistent COVID-19 caseloads spared its economy from lockdowns.

But the early months of 2022 and more easily transmissible variants have shattered that reality for China. Economic powerhouses like Shanghai and Beijing are facing strict lockdowns due to high caseloads. But top politicians like Keqiang are still urging local officials to focus on maintaining the country’s economic growth trajectory.

Local officials need to maintain output in sectors critical to the operation of China’s economy, including energy generation, manufacturing, and agricultural production, Li said. Inflation, currently at 2.1% in China, is a serious concern, and officials will be held responsible if they are unable to meet grain quotas, he added.

The economic downturn caused by lockdowns in Shanghai has hit China’s manufacturing regions hard. Its economy grew by only 4.8% last quarter, 0.7% below the government’s target.

Production has slowed significantly as China’s zero-COVID policy commanded large lockdowns around the deltas of the Yangtze and Pearl rivers, the two hubs of China’s economic strength. Should activity in these regions remain stalled—and should the regions be joined by other powerhouses where caseloads are rising fast, such as Beijing—the government’s 5.5% growth target may well prove unobtainable.

Li suggested that the country’s zero-COVID strategy is unlikely to change, however, and urged local officials to balance economic growth targets with keeping COVID caseloads to a minimum.

China’s lockdowns are resulting in global repercussions, with more than 180 companies around the world citing their impact during the first quarter. They’ve been especially hard on small businesses, and many foreign-owned enterprises are considering moving their operations out of the country, including major international retailers.

Apple is the latest major company said to be considering moving more of its production and manufacturing capacity outside of China, with the company looking at expanding operations in cheaper markets such as Vietnam and India.

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