India overthrows China as Beijing counts the cost of zero Covid

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China recovered rapidly from the pandemic, but has been unable to turn this into sustained momentum.

Senior figures in international finance have been warning that China’s commitment to zero Covid is a threat to the global economy, in part because of the resulting disruption to global supply chains, which has fuelled rising inflation in the West.

In November the former Governor of the Bank of England Mark Carney said Beijing will need to “evolve or pivot” to a liberal management of the disease with vaccinations. However Chinese officials have restated their preference for strict rules, even in the face of the omicron variant.

Craig Botham at Pantheon Macroeconomics expects China to grow at 4.7pc, behind India’s 9.2pc but just ahead of the US’s 4.5pc.

He said zero Covid policies could make China appear a less reliable supplier of goods. “There has to be a concern on the export side that if you are looking where to source things from, will you go to China where ports and factories might be shut down at a moment’s notice very unpredictably, or will you go to another part of Asia where they have pivoted to living with the virus, and you have got the same access to the rest of the world?”

“It is not something that results in everything closing overnight and moving to Vietnam, but it creates a longer-term headwind.”

Gilles Moec, group chief economist at AXA Investment Managers, said the rapid spread of omicron means heavy-handed lockdowns to counter any outbreaks “could have a very significant impact on China’s productive capacity. This would be difficult to manage for foreign countries, in particular the EU and the US, which have become even more dependent on it since the start of the pandemic.”

Mr Botham said the property bust, embodied by troubled development group Evergrande, is also holding back crucial economic activity.

China has endured years of scepticism that its long boom could continue, but analysts at Citi warned “there are good reasons for thinking ‘this time is different’ in China, with the risk of a deeper and longer slowdown there as policymakers in Beijing stick with their intention to wean the Chinese economy off its dependence on real-estate investment, and embark on a more import-substituting, ‘fortress-like’ economic strategy”.

The result could be “a China-related negative shock to global activity”, they added.

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