Endless Shanghai Lockdown Is Crushing the Chinese Economy

Workers wearing protective gear stack up boxes with food over a cart to deliver in a neigh

Shanghai’s formerly robust economy slowed significantly in the first quarter of 2022, lagging almost two percent behind China’s overall growth and five percent behind its performance in 2021, thanks to severe coronavirus lockdowns imposed on the city.

“In January-February, the city’s economic operation was stable, but due to the impact of the COVID [Chinese coronavirus] outbreak in March, the first quarter was marked by stability followed by a decline,” the Shanghai statistics bureau stated.

Channel News Asia noted the bureau did not publish Shanghai’s GDP data for the fourth quarter of 2021, making a comparison of consecutive quarters difficult. However, Shanghai posted 8.1 percent growth in the first quarter of 2021, making its 3.1 percent growth in the first quarter of 2022 look quite anemic. Q2 is expected to be even worse since the citywide lockdown got underway in early April.

Other dismal economic indicators for the paralyzed city included a 7.5-percent decline in industrial production year-on-year, a 1.8 percent rise in consumer prices (driven by reported increases of over 500 percent in food prices as the lockdown took hold), and retail sales declining by 3.8 percent in March after two months of 3.7 percent growth.

Hopes that restrictions could be eased with declining case numbers were dashed this week as the Shanghai lockdown grew worse in many respects, including barricaded streets that impede food deliveries and more residents getting marched off to quarantine centers.

“Stop asking me why. There is no why,” a hazmat-suited “Big White” lockdown enforcer snapped at frightened residents in a viral video, neatly summarizing the spirit of the Shanghai lockdown.

Kenneth Jarrett, former president of the U.S. Chamber of Commerce in Shanghai, told Forbes on Monday that China’s “dynamic zero-Covid” lockdown strategy will “exact a very high cost on the economy” – not just in China but around the world.

“If ‘zero Covid’ remains the policy, lockdowns can happen all over China for the rest of the year. Given the complexity and size of supply chains in China, this could mean additional disruptions in the months ahead, which would ripple through and disrupt global supply chains,” said Jarrett, who lives in locked-down Shanghai.

“Internationally, people are scratching their heads trying to understand how a city with a strong reputation for competent management could be in such a state of crisis, including having people short of food,” he mused.

Jarrett said, “politics is in command and trumping public health” in Shanghai. He thought the city’s incredibly strict, and increasingly deranged, lockdown policy was driven by the Communist Party’s fear of a coronavirus death wave among the elderly, who have very low rates of vaccination – and those who received vaccinations were mostly given China’s ineffective products. 

“For political reasons, however, they still refuse to allow foreign [vaccine] imports. In that sense, they’re painted themselves into a corner in terms of public health policy options,” he said.

A resident looks out at the street from their window during the Covid-19 coronavirus lockdown in the Jing'an district in Shanghai on May 5, 2022. (Photo by HECTOR RETAMAL / AFP) (Photo by HECTOR RETAMAL/AFP via Getty Images)

A resident looks out at the street from their window during the Chinese coronavirus lockdown in the Jing’an district in Shanghai on May 5, 2022. (HECTOR RETAMAL/AFP via Getty Images)

Jarrett and other analysts doubted the Shanghai crisis has yet grown severe enough to threaten dictator Xi Jinping’s grip on power as he seeks a third term at the upcoming Communist Party Congress, but Reuters noted on Tuesday that one of Xi’s key allies might be in some trouble, as Shanghai Communist Party leader Li Qiang is taking heat for initially attempting a “soft” approach to the omicron outbreak that tried to keep the industrial and financial hub fully up and running. 

“Social media users have directed some of their ire at Li, with posts on the popular Weibo site such as ‘Shanghai party secretary should just acknowledge his mistake and resign,’ and ‘Shameless politician destroyed Shanghai,’” Reuters noted.

Li is so powerful and useful to Xi that “politically dispensable” underlings will probably be lined up to take the blame for the Shanghai debacle, as former British diplomat Charles Parton put it, but if the Shanghai outbreak continues to make a mockery of Xi’s “dynamic zero-Covid” strategy, those political calculations could change.

Chinese President Xi Jinping attends the commemoration of the 110th anniversary of the Xinhai Revolution which overthrew the Qing Dynasty and led to the founding of the Republic of China, at the Great Hall of the People in Beijing on October 9, 2021. (Noel Celis/AFP via Getty Images)

Chinese leader Xi Jinping in the Great Hall of the People in Beijing, China, on October 9, 2021. Analysts doubt that Xi’s leadership is threatened by the Shanghai crisis. (Noel Celis/AFP via Getty Images)

Polls show a large number of foreign entrepreneurs are leaving Shanghai for good due to the lockdowns, a process similar to the “brain drain” exodus from Hong Kong sparked by the latter’s authoritarian crackdown on pro-democracy demonstrators.

Combined with supply chain disruptions from the Russian invasion of Ukraine, coronavirus lockdowns are threatening to derail China’s plans for economic growth in what was supposed to be a pandemic recovery year.

“There are increasing signs that China’s economy is slowing sharply because of the lockdowns. Activity in China’s services sector contracted at the steepest pace in two years in March as the surge in cases restricted mobility and weighed on demand. The closely watched Caixin purchasing managers’ index (PMI) dived to 42.0 in March from 50.2 in February. A drop below the 50-point mark separates growth from contraction,” the U.K. Guardian reported last week.


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