Background: From closed to open
For nearly three years, China has been partially closed, with mandatory quarantine and mass testing in case of suspected infection.
Now the covid policy has changed in one fell swoop. Away with mass testing and quarantine. The message is now that the infection is basically harmless.
However, the consequence has been immediate with a greatly increased number of infected.
On Wednesday, the country’s health authority stated that it had lost control over how many of the billion population are currently infected
What prompted China’s leadership to relax the covid policy is shrouded in obscurity. But the country’s economy is under pressure.
Retail sales in November fell 5.9 percent last month from a year ago, the worst decline since May.
At the same time, the country’s industrial production rose by 2.2 percent, only half as much as in October, while unemployment rose to 5.7 percent, slightly higher than the market’s forecast.
The lifted restrictions in China have caused the number of infections to skyrocket.
— Rumors are going around in China that almost everyone has been infected and sick now. Sure, the omikron variety is said to be kinder, and many believe it’s over in a week. But we know here that it can take longer than that, says Kristina Sandklef, independent China analyst.
Many people in China have no protection against the coronavirus because not everyone is vaccinated. Especially not the elderly. In addition, the vaccines are inferior to those used in the West.
The Chinese New Year
According to Sandklef, they are working full time in the factories, to catch up and to be able to close again when the Chinese New Year falls on January 21. It’s a big travel weekend as Chinese travel to their home provinces. China is basically closed for several weeks, and everything goes at half speed for longer than that. The New Year’s celebration can speed up the spread of infection even more, but the infection can also cause it before then.
Kristina Sandklef believes that major disease outbreaks can disrupt production in the factories now that they are busy.
— It is not unlikely that there will be disruptions in the supply chains. But at the same time, it’s not the same situation as before, with long planned closures, says Kristina Sandklef.
Mats Kinnwall, chief economist at Teknikföretagen, also foresees that major disease outbreaks could affect Chinese companies. Both industrial production, transport, ports and other necessary administration and infrastructure can be affected.
– It has been closed before, and now it will be a general contagion. It is inevitable that there will be disruptions, he says.
He is supported by Björn Cappelin, at the National Knowledge Center on China at the Foreign Policy Institute.
— We should probably be prepared for it to affect production, logistics and shipping. But whether it will have the same impact as last spring, it is difficult to say, says Björn Cappelin.
Although omicron may be milder, the infection can have major consequences.
— Healthcare is poorly developed in China, and it could be overwhelmed if many people get infected. There are also risks with the low vaccination coverage among the elderly, says Björn Cappelin.
The world economy
Mats Kinnwall explains that China, as the world’s largest economy, also has a major impact on the rest of the world. If things go badly in China, it’s bad news for us too.
— It can have an impact on the world economy, in a situation where China’s economy is not as strong. It can be a tricky situation, says Björn Cappelin.
The previous problems with supply chains and bottlenecks were just beginning to be resolved. At least partly, notes Mats Kinnwall. But now there may be new problems again.
— There may be price rushes. But what speaks against that is that we have a different economic situation now, demand is not as strong, says Mats Kinnwall.