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With the rise of COVID, is China heading for economic turmoil?

Photo for representation. (Picture: AP)

New Delhi: The massive COVID surge China is witnessing could have a profound impact on the country’s economy. Economic news in China in the coming days is likely to worsen.

Financial experts say Shanghai, which is the backbone of China’s economic growth, will also face financial difficulties in the coming year.

Will Beijing’s recent U-turn in zero Covid policy help the economy?

After Chinese stocks extended their gains and Beijing dismantled zero-Covid with the decision to reopen the border in early January, analysts said local governments may not see an increase in revenue from taxes or sales. of land.

According to a report published in the South China Morning Post, “Aviation, airports, tourism and hotels that benefited from the reopening theme performed well in early trading on the news,” said Kenny Ng Lai-yin, strategist at Everbright Sun Hung Kai Securities. “Gains narrowed as investors already had certain expectations for this move.”

Meanwhile, COVID will be downgraded as an infectious disease, the National Health Commission in Beijing said. After the border reopens, travelers will only be required to provide a negative test result within 48 hours of arrival.

Why is 2023 looking increasingly bleak for the Chinese economy?

The world’s second-largest economy recorded its first decline in exports since the early days of the pandemic in October this year, while factory activity and gate prices also fell.

The ultra-rich have also seen their fortunes decline, with the Hurun China Rich List recording its biggest drop in November in the number of individuals worth at least five billion yuan ($690 million) since the 1990s.

A report in barrons said: “The rapid rise in infections has further reduced in-person activity, with alternative economic indicators leading to estimates of the pace of economic contraction year-on-year deepening to nearly 7% in November against 4% in October.”

Several analysts have pointed to overseas recessions as a key factor in the slump in exports, long a major driver of growth in China’s economy.

“Monetary conditions are tightening rapidly in other countries, while inflation continues to remain elevated amid high energy costs,” Erin Xin, Greater China economist at HSBC, said in a note in November. pointing to a sharp drop in global demand for discretionary exports. items like clothing and electronics.

“As global demand slows, the domestic economy will have to take over,” he added.

Beijing’s insistence on maintaining its strict policy of instant lockdowns and travel restrictions whenever Covid cases arise has added to the pain – leaving businesses reeling from the sudden disruption and consumers reluctant to spend.

Meanwhile, China is the world’s biggest trader and the biggest market for its Asian neighbors. Weak consumer or factory demand can hurt global producers of oil and other raw materials, computer chips and other industrial components, food products and consumer goods.

With contributions from agencies

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