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China makes tweaks, but tough COVID policy still drags on economy – Financial Post

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BEIJING — China has been tweaking its stringent COVID curbs but shows no sign of backing off from its “dynamic zero” policy, and has lagged in vaccination efforts that would enable it to do so, casting a heavy shadow over the world’s second-largest economy.

The absence of a roadmap out of zero-COVID and expectations that it will persist well into 2023 leaves residents and businesses facing a prolonged period of uncertainty.

Recent scattered COVID flare-ups, the imposition of lockdowns in some cities and the arrival of the highly-contagious BA.5 variant have added to those worries.

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On Friday, China is expected to report that gross domestic product (GDP) grew just 1% in the second quarter, with full year growth forecast at 4%, according to a Reuters poll – far short of Beijing’s official target of around 5.5% for 2022.

In addition to a sharp lockdown-induced slowdown, growth has been weighed down by a sputtering property market and an uncertain global outlook.

This week, Shanghai’s 25 million people were subject to more mandatory city-wide testing, and fear of tougher measures or getting caught up in China’s zero-COVID bureaucracy continues to exact an economic toll, including on consumption and jobs.

Nomura estimated 31 cities were implementing full or partial lockdowns as of July 11, affecting nearly 250 million people in regions accounting for a quarter of China’s GDP.

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As the rest of the world tries to coexist with COVID, China points to the lives saved by its tough measures. President Xi Jinping has touted it as an advantage of China’s governance system.

Critics say China is hamstrung by the success of an approach that is obsolete now that vaccines have made COVID far less deadly.

China’s self-isolation also has long-term economic implications.

“The rest of the world is reopening and the zero covid policy in China will probably drive export orders and production to other countries during the supply-chain normalization,” Ken Cheung, chief Asian FX strategist at Mizuho, wrote on Wednesday.

Businesses have described how they have been badly hurt and find it hard to plan given the possibility of abrupt lockdowns, while international business groups have been especially vocal about the costs of zero-COVID, with members warning of plans to invest elsewhere.

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“The world is not going to wait for China to improve her herd immunity,” said Joerg Wuttke, president of the EU Chamber of Commerce.

HERD IMMUNITY

While China has been spared the ravages of widespread infections and deaths, it therefore lacks herd immunity, with its vast elderly population especially exposed.

However, China has refrained from aggressive vaccination efforts. Last week, the city of Beijing quickly reversed a planned vaccine mandate for entry to crowded places after strong online backlash.

China also has not approved the import of more effective vaccines using mRNA technology or fully developed its own.

“The curbs can only be lifted after the country has finished vaccinating the elderly. This might not be before fall 2023,” said Wuttke, who has suggested to Premier Li Keqiang that China set up vaccination tents next to its now-ubiquitous testing kiosks.

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China has vaccinated nearly 90% of its 1.41 billion population and given around 56% of its population a booster shot. Still, 30 million Chinese elderly are unvaccinated.

Zhang Zuofeng, a UCLA professor of epidemiology, said a lack of data on the safety of China’s vaccines or their effectiveness against Omicron has undermined government and public confidence in them.

“Had China had confidence in its vaccines, with high vaccination rates among Chinese people, it would have already moved from focusing on eliminating COVID infections to mitigation of serious illnesses and deaths,” he said.

SOFTENING EDGES

To be sure, China has become increasingly surgical in managing COVID, and few expect a repeat of Shanghai’s two-month lockdown nightmare.

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It is trying to soften the edges of a zero-COVID approach that is grating on a population frustrated by the sluggish economy – youth unemployment is at a record 18.4% – and the third year of pandemic, with no end in sight.

Beijing has warned local officials against needlessly arbitrary enforcement. More refined measures also decrease the likelihood of massive global supply chain disruptions like those caused by lockdowns in April and May, economists say.

Among other recent moves, China slashed centralized quarantine times for inbound travelers to seven days. Domestically, it has reduced scrutiny of recent travel history.

This week, China said local governments no longer need to test some imported goods for the coronavirus, and while chilled and frozen foods will continue to be tested, exporters will not face import suspensions if their goods test positive.

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‘FINAL VICTORY’

It is a tricky balance for Xi, poised to secure a precedent-breaking third leadership term later this year, who wants to avoid both a sharp rise in COVID cases and deaths and an abrupt economic downtown. Either would threaten social stability.

Last month in Wuhan, where COVID-19 first emerged, Xi said the zero-COVID policy is “correct and effective,” and that temporary economic impact is preferable to loss of life.

“Xi said it very clearly… he wants to achieve final victory against COVID,” said Chen Daoyin, former associate professor at Shanghai University of Political Science and Law.

“It’s not a matter of before or after the 20th Party Congress. Any change to the zero-COVID policy, which would not be made easily, will have to depend on how the BA.5 situation pans out,” he said.

(Reporting by Tony Munroe Additional reporting by Yew Lun Tian, Roxanne Liu and Kevin Yao in Beijing and Samuel Shen in Shanghai; Editing by Kim Coghill)

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What you need to know about the global economy this week – World Economic Forum

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World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

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Extreme heat is slamming the world's three biggest economies all at once – CNN

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London (CNN Business)Estimating just how catastrophic climate change will be for the global economy has historically proven challenging. But this summer, it’s increasingly evident how quickly costs can pile up.

Extreme heat and drought conditions are battering the United States, Europe and China, compounding problems for workers and businesses at a time when economic growth is already slowing sharply and adding to upward pressure on prices.
In China’s Sichuan province, all factories have been ordered shut for six days to conserve power. Ships carrying coal and chemicals are struggling to make their usual trips along Germany’s Rhine river. And people living on America’s West Coast have been asked to use less electricity as temperatures soar.
These events “have the capacity to be quite significant for the particular regions that are affected,” said Ben May, director of global macro research at Oxford Economics.
The extent of the pain could depend on how long the heatwaves and lack of rain last. But in countries like Germany, experts warn there’s little relief in sight, and companies are preparing for the worst.
A barge passes exposed rocks and sandbanks on the Rhine river in Bacharach, Germany, on Aug. 15.

A barge passes exposed rocks and sandbanks on the Rhine river in Bacharach, Germany, on Aug. 15.

Extreme weather and an economic slowdown

It’s not just the Rhine. Around the world, rivers that support global growth — the Yangtze, the Danube and the Colorado — are drying up, impeding the movement of goods, messing with irrigation systems and making it harder for power plants and factories to stay cool.
At the same time, scorching heat is hampering transportation networks, straining power supply and hurting worker productivity.
“We shouldn’t be surprised by the heat wave events,” said Bob Ward, policy and communications director at the London School of Economics’ Grantham Research Institute on Climate Change and the Environment. “They’re exactly what we predicted and are part of a trend: more frequent, more intense, all over the world.”
China is facing its fiercest heat wave in six decades, with temperatures crossing 40 degrees Celsius (104 degrees Fahrenheit) in dozens of cities. Parts of California could see temperatures as high as 109 degrees Fahrenheit this week. Earlier this summer, temperatures topped 40 degrees Celsius in the United Kingdom for the first time ever.
Dry grass is seen in Greenwich Park, England. Sixty-three percent of land in the European Union and United Kingdom — an area nearly the same size as India — is now under either drought warnings or alerts.

Dry grass is seen in Greenwich Park, England. Sixty-three percent of land in the European Union and United Kingdom — an area nearly the same size as India — is now under either drought warnings or alerts.

The global economy was already under pressure. Europe is at high risk of a recession as energy prices soar, stoked by Russia’s invasion of Ukraine. High inflation and aggressive interest rate hikes by the Federal Reserve jeopardize growth in the United States. China is grappling with the consequences of harsh coronavirus lockdowns and a real estate crisis.
“At present, we are at the most difficult point of economic stabilization,” Chinese Premier Li Keqiang said this week.

Something else to worry about

Extreme weather could exacerbate “existing pinch points” along supply chains, a major reason inflation has been difficult to bring down, May of Oxford Economics said.
China’s Sichuan province, where factories have shuttered production this week, is a hub for makers of semiconductors and solar panels. The power rationing will hit factories belonging to some of the world’s biggest electronics companies, including Apple (AAPL) supplier Foxconn and Intel (INTC).
The province is also the epicenter of China’s lithium mining industry. The shutdown may push up the cost of the raw material, which is a key component in electric car batteries.
The neighboring city of Chongqing, which sits at the confluence of the Yangtze and Jialing rivers, has also ordered factories to suspend operations for a week through next Wednesday to conserve electricity, state media The Paper reported.
The Yangtze riverbed is exposed due to drought on Aug. 17 in Chongqing, China.

The Yangtze riverbed is exposed due to drought on Aug. 17 in Chongqing, China.

Forecasts for China’s economy this year are already being downgraded as a consequence. Analysts at Nomura cut their 2022 projection for GDP growth to 2.8% on Thursday — way below the government’s 5.5% target — while Goldman Sachs trimmed its forecast to 3%.
Germany’s shrinking Rhine, meanwhile, has dropped below a critical level, impeding the flow of vessels. The river is a crucial conduit for chemicals and grain as well as commodities — including coal, which is in higher demand as the country races to fill storage facilities with natural gas ahead of the winter. Finding alternative forms of transit is difficult given labor shortages.
“It is only a matter of time before plants in the chemical or steel industry are shut down, mineral oils and building materials fail to reach their destination, or large-volume and heavy transports can no longer be carried out,” Holger Lösch, deputy director of the Federation of German Industries, said in a statement this week.
Low water levels along the Rhine shaved about 0.3 percentage points off Germany’s economic output in 2018, according to Carsten Brzeski, global head of macro at ING. But in that instance, low water wasn’t a problem until late September. This time around, it could lower GDP by at least 0.5 percentage points in the second half of this year, he estimated.
Economic sentiment in Germany continued to dip in August, according to data released this week. Brzeski said the country “would need an economic miracle” to avoid falling into a recession in the coming months.
A bathtub ring watermark at Hoover Dam/Lake Mead, the country's largest man-made water reservoir, formed by the dam on the Colorado River.

A bathtub ring watermark at Hoover Dam/Lake Mead, the country's largest man-made water reservoir, formed by the dam on the Colorado River.

In the American West, an extraordinary drought is draining the nation’s largest reservoirs, forcing the federal government to implement new mandatory water cuts. It’s also forcing farmers to destroy crops.
Nearly three quarters of US farmers say this year’s drought is hurting their harvest — with significant crop and income loss, according to a survey by the American Farm Bureau Federation, an insurance company and lobbying group that represents agricultural interests.
The survey was conducted across 15 states from June 8 to July 20 in extreme drought regions from Texas to North Dakota to California, which makes up nearly half of the country’s agricultural production value. In California — a state with high fruit and nut tree crops — 50% of farmers said they had to remove trees and multiyear crops due to drought, which will affect future revenue.
Without significant investment in upgrading infrastructure, costs will only keep rising, Ward of the London School of Economics noted. And the impact may not be incremental.
“There are signs these heat episodes are not just becoming slightly more intense and frequent over time. It’s happening in a kind of non-gradual way, and that will make it more difficult to adapt,” Ward said.
— Laura He, Shawn Deng, Simone McCarthy, Benjamin Brown, Aya Elamroussi, Taylor Romine and Vanessa Yurkevich contributed reporting.

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Chile's Economy Stagnates in Second Quarter as Demand Withers – Bloomberg

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Chile’s Economy Stagnates in Second Quarter as Demand Withers  Bloomberg



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