China’s Corona policy: “Sand in the gears of world trade”


Status: 01/27/2022 12:55 p.m

China is sticking to the zero-Covid strategy and sealing off entire cities in the event of Corona cases. In an interview, Stefan Kooths, Vice President of the Institute for the World Economy, explains why he considers this a danger China is sticking to its zero-Covid strategy despite only 30 percent of its population being vaccinated and the highly contagious omicron variant unstoppable. This means that further lockdowns are programmed. Is chaos threatening the country and thus the global economy?

Stefan Kooths: No, I don’t see a danger of chaos, but this policy throws a spanner in the works of world trade and damages global economic momentum. Because China’s Covid strategy does not show how the pandemic can be overcome in this way, especially since the vaccines used there do not seem to produce the same basic immunization as the vaccines used in the West. And if a large part of the population has not yet come into contact with the virus, the pandemic threatens to become a very long story, while in many western countries there is hope that Corona will soon enter an endemic phase.

Fight against pandemic slows down economy Can the extent of the resulting burden be quantified?

Kooths: We don’t expect a slump, but a slower expansion process because the pandemic policy will become a burden that will reduce growth rates. China’s high growth rate of around eight percent last year will not be repeated this year anyway, because it reflects catch-up effects after the meager previous year. Without special effects, the Chinese economy could currently grow by around five percent per year. However, that is unlikely to be achieved in 2022; we expect little more than four percent, not least because fighting the pandemic there is costing economic momentum.

Stefan Kooths, Vice President of the Kiel Institute for the World Economy, expects significantly weaker growth in China this year.

Image: ifw Kiel How dangerous is lower growth for the country’s stability?

Kooths: The acceptance of the regime there depends crucially on whether the population’s expectations of prosperity can be met. The government will therefore always take a business-friendly course – and will think twice about whether the zero-Covid strategy is the ultimate wisdom. Another question is whether to give up this policy secretly, quietly, or actively communicate the change. The aspect of saving face, which is deeply rooted in Chinese culture, speaks in favor of the first variant. The rest of the world would be well advised to make this change of course as easy as possible for the Chinese leadership. What effects do you expect to have on world trade as a result of repeated lockdowns in China?

Kooths: This danger of possible upheavals is great. The effects of the lockdowns are already visible. Our indicators show that the container ship traffic in the Red Sea, which is important for Asian-European trade, is currently 15 percent below the level that would be expected without the restrictions, which are mainly emanating from China. In this respect, world trade is already being affected. What impact is the uncertain situation in China having on growth in Germany, the country’s largest trading partner in Europe?

Nationalistic tones as a signal internally

Kooths: An overall restrained economic development in China is already taken into account in the forecasts for Germany. Should there be a significant slump in China, that would of course also cloud the prospects in Germany, but not so much from the sales side as from an intensification of the supply bottlenecks, which are hampering production in this country. Demand is very high worldwide after the pandemic, so the sales weakness in China is less severe than in normal times. And if German car plants temporarily close in China, this will not have such a serious impact on economic performance in Germany. What dangers to world trade are posed by rising nationalism in China and the will to reduce dependence on exports?

Kooths: While the nationalist tones are worrying, they are more inward looking and should not necessarily be taken as hostile rhetoric towards trading partners. This is also about the political stability of the regime. It is in the nature of things that China is changing and developing and that economic structures are changing as a result. However, it is not to be expected that the international division of labor will be abandoned, because China benefits from international trade, as do its partners. In addition, one must not forget that the per capita income in China is only a fifth of the level of western industrialized countries. The country still has huge development potential.

Lothar Gries conducted the interview.

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