Just months after the economy reopened, key neighborhoods in China’s tech hub of Shenzhen have returned to lockdownextended restrictions on public activities and closed public transportation on Friday as cities across China continue to battle new COVID-19 outbreaks that have clouded prospects for economic recovery.
Authorities in Beijing have ordered residents of six districts comprising the majority of the city’s 18 million people to be tested twice for Covid-19 over the weekend with employees required to work from home.
An exception has been made for employees who work in self-contained “closed-loop” operations, utilities and essential supplies. For example, in the southwestern metropolis of Chengdu, factories, including factories run by auto giants Toyota and volkswagen kept production in a closed loop. Chengdu’s 21 million people were placed under confinement on Thursday.
Oil prices this week has been dominated by downward pressure from China’s COVID lockdowns, which signal reduced future demand.
Last May, rising oil prices came to an abrupt halt after Beijing adopted a “Zero-Covid” strategy and announced strict Covid-19 containment measures, including major lockdowns. While strict lockdowns and curfews succeeded in slowing the latest Covid-19 outbreak in the country, they have had a negative impact on Chinese consumer demand and manufacturing output.
Unfortunately, China’s struggling economy cannot be repaired with simple measures like lockdowns this time around, with growing signs that China’s economy may be entering a prolonged era of slow growth.
The world’s second-largest economy is expected to grow just 2% this year, significantly less than the 2.8% increase in US gross domestic product. Maintaining a COVID-zero policy has slowed the economy and added huge additional costs to the government budget, leaving Beijing in a dilemma of whether to increase debt or tolerate weak economic growth.
Fiscal tensions were already mounting before Covid spending pressures arrived, including a slump in land sales revenue due to the housing downturn as well as corporate tax breaks that reduce government revenue. Indeed, official data shows that the extended budget deficit hit a record close to 3 trillion yuan ($448 billion) in the first five months of the year.
By Alex Kimani for Oilprice.com
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