The complete reversal of China’s corona policy surprised the researchers – these are the effects of a huge corona wave on the economy

The complete reversal of Chinas corona policy surprised the researchers

China has made a complete turnaround in its corona policy.

As late as November 21, the deputy prime minister responsible for the country’s corona measures Sun Chulan swore by the zero policy. The infections should be reduced to zero, he said at the time, according to the Reuters news agency. However, nine days later, Sun announced that the virus had “weakened”.

The testing sites have been closed. The virus monitoring application has stopped working. There is an uncontrollable corona wave going on in the country.

– Yes, this surprised me, says someone who follows the Chinese economy Riikka Nuutilainen.

– The fear has been that it is not possible to give up such big flagship projects without losing face. Now, fortunately, it seems that the chosen policy line can still be changed.

Nuutilainen works as a senior economist at the Bank of Finland’s Emerging Economies Research Institute. The quick abandonment of restrictive measures surprised him, as China does not seem to be particularly prepared for a large corona wave.

Others are also surprised by the policy change made by an authoritarian country. For example, Nuutilainen’s economist colleagues assessed to a few weeks ago that China is unlikely to give up its zero policy – ​​at least not quickly.

When something happens in the world’s second largest national economy, the effects are reflected in the chains of the global economy. In the long term, the end of China’s zero-sum policy is welcome news for the global economy. In the short term, however, there may be disruptions in data that can be felt as far away as Finland.

Will the factories stay open?

There is no accurate information on the extent of the corona wave, as there are no reliable figures on the number of people affected. In any case, the virus is now expected to spread widely, as a large part of the Chinese do not yet have protection against the disease caused by the virus. Vaccine coverage for the elderly in particular is at a weak level.

From the point of view of the economy, a big question is how much of the working-age population will have to be out of work due to the coronavirus infection. Will the factories’ production have to be reduced or put on hold completely due to a lack of personnel?

– If a wave hits one of China’s export centers, it will certainly have an effect [myös Eurooppaan ja Suomeen]. How serious and long-lasting the consequences are is another matter, says Nuutilainen.

The Finnish engineering companies Valmet and Wärtsilä have several production facilities in China. Valmet has about 2,300 employees in China, and Wärtsilä also has another 2,000. Both companies are told that there have been more cases of illness, but the corona wave has not significantly affected the companies’ operations in China.

– So far, the sick have survived with home care and about 5-7 days of illness, Valmet’s director of communications and marketing Anu Salonsaari-Posti says.

– We have seen some cases of infection. At the same time, our China team is well prepared for this change, so that no critical tasks are jeopardized, says Wärtsilä’s director of communications Atte Palomäki.

A quick change in policy also brings uncertainty. The fear is that the country’s healthcare system will be overloaded and a large number of people will die from the disease caused by the virus.

Fear and uncertainty are also reflected in the behavior of Chinese consumers. Nuutilainen estimates that the Chinese are wary of the spread of the virus and do not dare to go shopping as usual, for example, because the danger of the virus has been feared for several years.

Now the Chinese propaganda machine has a completely different voice on the clock. The Chinese media, on the contrary, tries to convince that the virus is not dangerous and that there is no reason to worry. According to the news agency Reuters, the Chinese have so far not been given any explanation for the change in corona policy other than the fact that the transformation has “weakened”.

It is difficult to know the real reasons for the sudden dismantling of the restrictions. The background of the full turnaround is possibly the large-scale protests against the restrictions. Director of the WHO Mike Ryan has rated again (you switch to another service)that the virus was already spreading before the restrictions were lifted, and one of the reasons for ending the restrictions was that they didn’t work.

On the other hand, economic factors have also probably influenced the decision. The strict corona line has become expensive, especially for local governments, whose responsibility it has been to implement the policy, says Nuutilainen.

Read more about the large debt burden of local governments here.

– There has certainly been a message from there that this cannot be continued for very long. In the national economy as a whole, consumer confidence is also weak, foreign demand has begun to decrease and restrictions have weighed on domestic demand.

In the long run, this is a welcome thing

Abandoning the zero policy is in itself a good thing for the Chinese economy and the world economy as a whole, Nuutilainen estimates. Valmet and Wärtsilä also think that the policy change is welcome.

– Our local management and personnel have welcomed the changes, says Valmet’s Salonsaari-Posti.

– This is a very positive thing for Wärtsilä already on a practical level. Our installation and maintenance personnel are now much easier to go to the docks and ships and do their work, says Palomäki.

The coronavirus restrictions have weighed on the Chinese economy for a long time and also hindered the operations of many European companies. For example, Wärtsilä has said that some of its Chinese personnel had to live in the factories for several weeks due to the strict lockdown. Elevator company Kone, on the other hand, estimates in the summer that the company’s financial figures will suffer from China’s strict corona measures.

China has traditionally been the growth engine of the world economy, but partly due to the strict corona policy, the country’s growth forecasts have been constantly lowered. This has also been reflected in the growth prospects of the global economy as a whole.

According to Nuutilainen, it is still too early to assess how the waiver of strict restrictions will affect China’s economic outlook for next year.

– We still don’t know what will happen in the future. However, will there be any additional regional restrictions? And how long will the uncertainty caused by the virus last anyway? Even in Western countries, it took months after achieving some kind of vaccine coverage before reaching the post-corona period.

The subject can be discussed until Friday, December 16, at 11 p.m.

Read more:

Analysis: Corona infections are now spreading violently in China – zero tolerance collapsed into its own impossibility

The effects of China’s extraordinary protests can also be seen in the economy – the big question is whether workers will go to work or take to the streets

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