China's Covid-zero policy has limited drag on economy, ANZ says

[HONG KONG] China's "Covid- zero" policy has limited impact on the economy because measures are highly localised and targeted, according to Australia & New Zealand Banking Group.

Only around 2.6 per cent of China's economy in terms of gross domestic product is subject to so-called "dynamic clearing" policy measures currently, economists led by Raymond Yeung wrote in a report on Tuesday (Feb 15).

Assuming the impact lasts for a quarter, that effect is 0.6 per cent of annual GDP, they estimate.

The worst-performing sectors since the pandemic broke out are leasing and commercial services as well as hotels and catering services, which account for only 4.7 per cent of China's overall economic growth, they wrote.

Therefore, China's current economic slowdown is not mainly due to the pandemic, but the result of structural reforms such as regulatory tightening in various sectors, efforts to cut debt in the economy, and carbon emission controls, according to the report.

The Covid zero policy has dampened retail sales growth, which hasn't yet returned to pre-Covid levels, the economists wrote, but that drag on economic activities is limited to local communities rather than the entire nation.

Stringent port checks haven't led to supply chain bottlenecks, but instead container turnaround time is actually shorter in China than in many other countries, according to the report.

In addition, the external balance has benefitted from the pandemic, the economists said, as strict quarantine requirements deterred outbound travel and encouraged consumers to spend domestically. BLOOMBERG