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Global Impact: China’s zero-Covid policy exit provides another test for its beleaguered economy

It’s set to be a long winter as an unprecedented Omicron wave rips through China. Infections are outpacing medical supplies, hospitals are overwhelmed, obituaries are frequently being written, and the economy is still struggling.

It seems we are not prepared and it is posing the biggest test for President Xi Jinping and his new team to lead the country to weather the coronavirus storm and restore economic and social order.

A spike in infections was inevitable and the economic recovery will be bumpy after Beijing’s abrupt pivot away from its zero-Covid policy, but the speed of infection has been surprisingly fast.

In dire shortage of medical supplies, people have to rely on neighbours and friends to share fever-reducing medicines and rapid antigen test kits. They are also desperate to protect the elderly and children, seen as the most vulnerable groups. In Taiwan and Hong Kong, people are purchasing Panadol in bulk for families and friends in mainland China.

Health officials have also narrowed the definition of a coronavirus-related death and now only count those who die from respiratory failure. On the other hand, crematoriums in Beijing are reportedly crowded and people are sharing the sorrow of losing their loved ones on social media.

The Lunar New Year, which takes places towards the end of January, will be another test for the nation’s virus prevention measures as the world’s largest migration each year for family reunions is likely to speed up infections in rural areas, which are less covered by medical services compared to big cities, but are made up largely of the elderly and children.

A return to normal is not expected until the second quarter of next year, when it is hoped a strong economic recovery will take place.

Admitting the heightened economic headwinds, the new leadership again made economic growth a top priority at a key economic meeting last week, and said that the nation is entering a new phase of living with the virus while focusing on treating and preventing severe illness.

The two-day central economic work conference also sent a strong signal to back up the beleaguered private sector, part of Beijing’s efforts to lift confidence and address concerns over policy uncertainty and unpredictability.

Beijing played up the significance of the private sector to the overall economy, pledging to put it on equal footing with the state sector and vowing to protect the interests of private entrepreneurs.

The government will prioritise stimulating consumption next year, while maintaining a strong export environment and protecting and attracting foreign investments. It also pledged stronger fiscal and monetary support to stabilise the economy and employment.

But sweet talk is not enough. Business communities and analysts have warned against risks of promise fatigue. Concrete actions are most needed to retain the allure of the Chinese market and revitalise the bruised private sector that has been hit hard by the crackdown on the property sector, private tutoring and big tech companies.

The government is also stepping up rescue measures for the struggling property market.Outgoing economic tsar Liu He said that the sector is a pillar industry for China, and that he is highly confident for an economic recovery in 2023.


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