If we are in a spacecraft and observe the Earth from outer space, we might find there are two anomalies that can be best described as "movement" for the first one, and "stillness" for the second one. "Movement" here refers to the ongoing Russia-Ukraine war. The artillery fire on both sides is the largest war effort currently underway on the planet. "Stillness", on the other hand, refers to the measures that take place in some cities under lockdown in China. These previously bustling cities, with millions or even tens of millions of people, suddenly become quiet and still overnight, and the roads once busy with traffic have now become practically empty.
The scene described in the "stillness" part is not an exaggerated fiction, but the reality that happens in China right now. This is the result of the country's strict measures in response to the outbreaks of the COVID-19 cases. With the imposition of "static management", as such measure is called, of each city (where lockdown is imposed based on region and period), the disruption it caused to economic activities and the losses incurred because of it may be no less than those resulted by a war.
In the first half of 2022, China's GDP was RMB 56,264.2 billion. Affected by the impact of the pandemic, the GDP growth rate in the first half of the year was only 2.5%. Assuming that there is no impact of COVID-19, and if the country's economy grew by 5% year-on-year in the first half of the year, then the GDP in that period would be about RMB 57,636.5 billion. This means that in the first half of the year, the Chinese economy lost about RMB 1,372.3 billion in added value due to the outbreaks. In 2022, the budget for national defense spending is RMB 1,476.081 billion (of which RMB 1,450.450 billion is allocated by the central government at its level), an increase of 7.1% over the previous year's budget execution. Comparing the two, it can be seen that the economic losses caused by the impact of the pandemic are considerable.
For this reason, researchers at ANBOUND emphasize that in the second half of the year, China needs to strike a balance between COVID-19 measures and economic recovery. If the mistakes of the first half of the year are repeated in the second half, the Chinese economy will be hit hard even without a war.
Right in the beginning of August, the spread of the novel coronavirus increased again in various places. Outbreaks have been reported in multiple areas in Zhejiang, Hainan, Xinjiang, Tibet, Guangdong, Jiangxi, Inner Mongolia, Sichuan, Guangxi, and other provinces. Under the practical principle of "social clearing", many cities have adopted "static management" measure in different scopes and times, resulting in a "freeze" of economic activities and urban operations in various places. There is no doubt that this will have a great impact on the economic recovery of some regions in the country.
Take Hainan Province, an important tourist destination in China, as an example. Hainan's economic growth target was set to be 9% year-on-year. However, the island province is the hardest hit area of this round of COVID-19 outbreak in the country. As of midnight of August 13, there were 3,800 confirmed cases in Hainan, making the total accumulative cases to be 4,135, with 386 risk areas in the province. The outbreak has forced the seaside resort city of Sanya to order tens of thousands of tourists to stay in hotels and residents to stay at home. "The public image and reputation of Hainan is damaged for the short term", said Jacques Penhirin of the American consulting firm Oliver Wyman. Duty-free sales in the province soared 84% to RMB 60.17 billion (USD 8.93 billion) in 2021, official data showed. There is no doubt that the outbreak will hit Hainan's tourism and duty-free shops. Unsurprisingly, its economic performance was poor in the first half of this year, growing only 1.6% in that period. If the outbreak continues furthermore, it is impossible for Hainan to achieve the 9% growth target.
In Zhejiang Province, a major economy of the country, the outbreak of COVID-19 has also had a unique impact. Official data shows that from 0:00 to 24:00 on August 13, Zhejiang had 24 new local cases, 42 new local asymptomatic cases, 24 new confirmed cases, and 91 confirmed cases (Since 2020, Zhejiang has seen a total of 3,285 cases with 3,193 cases of recovery, and 1 case of mortality), and there are 17 existing risk areas (16 in Yiwu and 1 in Dongyang). According to public data, from the outbreak on August 2 to 21:00 on August 14, Yiwu City has reported a total of 648 local positive infections, including 74 confirmed cases and 574 asymptomatic cases. Consequently, the entire city of Yiwu, a crucial global commodity distribution center, was shut down. Before the outbreak, the average daily outbound express delivery volume in Yiwu was about 30 million, and the inbound express delivery volume was between 1.5 million and 1.6 million. As of August 8, the number of outbound express delivery in Yiwu was around 25 million, and the inbound express delivery was in the range of 1.1 million, which were 16.7% and 26.7% lower than normal.
In other provinces of China, some cities have also adopted the "static management" measure. In Xinjiang and Tibet, while with relatively smaller economic aggregates, the implementation of control policies has become rather strict, especially Tibet which has suffered such an impact for the first time in more than two years. This was to the point that on August 14, three health officers there were removed from their posts. The effect of this year's measure against COVID-19 on the economic operation of Xinjiang and Tibet is considerable.
In the face of this year's complex situation, the Chinese central government has already pointed out the importance of controlling the outbreaks, stabilizing the economy, and securing the development. These are both the principles and the goals that the Chinese authorities set for this year. Understanding the situation, as well as the central government's instructions will be a test for local governments, and failing to do so would result in improper corresponding policies that would make striking the balance of handling the outbreaks, the economy, and the development hard to be realized. Mere strict implementation of "static management" and "one-size-fits-all lockdown" would not be good policy practice. This will not only arouse the dissatisfaction of the people and become a focus of public opinion, but may also cause the economy to collapse in the second half of the year, thus failing to achieve the goals of "stabilizing the economy" and "securing the development".
Researchers at ANBOUND believe that looking at the situations both within China and in the rest of the world, economic security may be elevated to be the most crucial part of the development. Not long ago, the media reported that a bus company in Henan Province was unable to pay drivers' wages for several months due to operational difficulties, resulting in the suspension of all urban buses. Such an outcome due to financial difficulties should be a concern for the authorities. Based on the understanding of ANBOUND's researchers, due to financial difficulties, in addition to cutting financial expenditures, many local civil servants and public institutions have implemented pay cuts. This naturally has caused increasing dissatisfaction and complaints among cadre teams, as they are the breadwinners for their families. A few years ago, ANBOUND warned that continued local financial difficulties could affect the "three stabilities", namely that of the cadre, the society, and the politics. The situation over the past few years has shown that the associated risks appear to be more and more likely.
Outside of China, different countries are facing a variety of challenges as well. Ukraine and Russia are both greatly affected by the brutality of the war. European countries are in a deep energy crisis and are experiencing high inflation and economic recession risks because of the war. Meanwhile, emerging market countries are facing capital outflows, poverty, food crisis, and other unfavorable factors. On the other hand, the United States, which seems to be benefiting from the global geopolitical turmoil, is also facing the looming shadow of high inflation and economic recession. As the largest emerging market country, although China has a huge domestic market and the foundation as the "world factory", and while it can obtain Russia's stable energy supply amid the global energy turmoil, it still faces its troubles, namely the strict COVID-19 measures. In the first half of the year, China's economy slowed down sharply. What will happen in the second half of the year? Judging from its current COVID-19 measures, the outlook does not seem optimistic.
Final analysis conclusion:
Under the complex situation both within the country and on the globe, local governments of China are facing challenges in achieving multiple goals such as COVID-19 control, maintaining economic stability, and securing development. As important executors of the central policy and as direct bearers of local development responsibilities, local officials need to have a more in-depth and comprehensive understanding of the "three balances" and the statement of "the economy is the biggest political matter this year".
