China's 'zero covid' is paid by all

Fei turns two months today locked up in the apartment he shares with two other young people in the economic capital of China, Shanghai. But Fei is confident that today is the first day he can leave his block for something other than a PCR test. "I still don't believe it," he comments on the eve of his theoretical release. And there are plenty of reasons to be suspicious. "They have been changing the dates over and over again, making all kinds of excuses to keep us confined," says this young Chinese chef who, like his quarantine companions -a Japanese and a Canadian-, has decided to leave the country as soon as he has the opportunity. "Just because we can move doesn't mean we can leave China," he points out.

The number of international flights has fallen to a minimum, the tickets have astronomical prices, and carrying out the necessary administrative procedures to leave the country when you cannot step on the street is an impossible mission. “Covid has disconnected China from the rest of the world in almost every way. The commercial has been the great exception. But the confinements that are taking place throughout the country to one degree or another are beginning to weigh down the economy, ”says Xiao Hu, a young Chinese entrepreneur who has an online store and who has seen her income fall to the point of flirting with the zero. "However, expenses have gone up because I have to look for expensive logistics alternatives," she says.

Something similar happens to Fei. “I haven't been paid for two months, just like one of my colleagues, who is a trainer in a gym. And there is no help from the government. Among those who can work from home there are many who receive only a percentage of their salary », she explains.

Fear of a drop in GDP

Analysts agree that the impact of the confinement in Shanghai, to which are added more selective quarantines in twenty cities -including the capital, Beijing, which has been shielded at all times and in which restrictions are now being tightened- , will weigh down economic growth in the second quarter. If between January and March China's GDP expanded by 4.8%, the fear today is that between April and June it could even contract, an extreme that the Authorities want to avoid at all costs. The International Monetary Fund has already lowered the growth forecast for the full year from 4.8% to 4.4%, almost half of the 8.1% it marked last year.

In any case, the punch will not only hit the wallet of Chinese citizens. The shock wave will be felt globally. Because Shanghai is one of the main economic engines of the second world power and not even the labor bubbles that keep workers in their jobs day and night have managed to prevent the closure of factories as important as Tesla's. The Ministry of Industry has created a 'white list' to mitigate the consequences of lockdowns in key companies, but it is estimated that even those can only access a third of the workforce.

And the biggest problem is in the port of Shanghai, the largest in the world. In this key infrastructure for globalization, bubble protocols have been implemented with the intention of reducing the impact on the supply chain, but the bottleneck is monumental. One in five container ships on the planet is waiting to dock in a Chinese port: they exceed 700, more than double the number last year around the same time, when the logistics chain was stretched to the limit and freight prices had risen. multiplied by ten.

Unfortunately, Alberto Fernández, director of the Torres winery in China and one of the most experienced Spaniards in the country, predicts that the worst is yet to come in Europe. "We will notice them especially in August or September," he predicts. And it will be felt in the form of product shortages and more inflation. «There are two types of cost overruns: the one caused by the increase in the cost of products manufactured in China, derived from the increase in the prices of national logistics and the losses caused by the months of confinement in which they have had to continue covering costs, and the one related to the increase in freight rates between China and Europe”, analyzes Fernández, who also expects great difficulties for foreign companies operating in the Asian giant.

A good example of this is its own, which is running out of stock due to the impossibility of accessing its warehouses in Shanghai since March 28, a fact that has caused the unprecedented collapse of sales in April. "And May is going to be worse," he says. The services sector is going to be the most affected by the confinements, and Fernández already anticipates that many bars and restaurants will be unable to meet their debts. But the damage is widespread and affects many companies doing business in China.

"Prisoners of their narrative"

"The situation is catastrophic," says another Spaniard, owner of an e-commerce company in the north of the country. «We have two containers around Shanghai, one month late to reach the port. This generates a lot of pressure on us because it is capital at a standstill, it reduces the time that the products can be on the shelves of the stores, and it forces us to carry out knock-down promotions if there are no sales », he explains.

As if that were not enough, Fernández appreciates structural weaknesses in Chinese consumption, which has been one of the main engines of global growth in the last three decades. “There have been layoffs in large technology companies and in the education sector. There are many wealthy people who are going to consume less due to job insecurity and family indebtedness, which already exceeds that of Germany », he explains.

“This year and the next, domestic consumption will decrease. The Chinese economy is not doing well. This is the time to leave, ”adds the Spanish manager. And he is not the only one who thinks so. In an unusually harsh interview with The Market, the president of the European Chamber of Commerce in China, Joerg Wuttke, assured that "Chinese leaders are prisoners of their own narrative", in relation to the prevailing discourse on the effectiveness of 'zero covid ' for Save lives.

"In Europe we see that normality is recovering, but in China the Authorities always return to the starting point," said Wuttke, stressing that the economic impact of the confinement in Shanghai is "almost as hard" as that of the start of the pandemic. Not in vain, a report published by the Chamber this week concludes that 78% of European companies in China consider that the country is less attractive due to its coronavirus policy, that 60% have reduced their revenue forecasts there, and that 23% are considering transferring their capital to other markets -more than double that at the beginning of the year-. As if that were not enough, around half of foreign residents have left the country since the pandemic began.

With the majority of the population vaccinated - although the percentage falls among the elderly - and the milder symptoms caused by the omicron variant, many do not understand why Beijing remains in its thirteen. But it is that a health issue has become a political issue. And with President Xi Jinping awaiting a third term in office in the fall -something that has not happened since the time of Mao Zedong-, a change in strategy could be understood as a concession to the factions within the Communist Party itself, for living with the virus. Shanghai tried and the shot has backfired, which reinforces Xi's position as the standard bearer of 'zero covid' that we are all going to pay for.