The Economist - 04.12.2021

TheEconomistDecember4th 2021 73

Finance & economics

China’sslowdown

Omicronomics

J

ack ma, the founder of China’s giant e­
commerce platform, Alibaba, started his
first web company after a visit to America
in  1995.  Cao  Dewang,  the  boss  of  Fuyao
Glass, a Chinese company made famous by
the documentary “American Factory”, ven­
tured into manufacturing after a trip to the
Ford  Motor  Museum  in  Michigan.  (The
museum’s significance struck him only on
the plane home, he told an interviewer, so
he  immediately  booked  a  return  flight  to
make a second visit.)
Travel  is  vital  to  innovation.  Unfortu­
nately what is true of business is also true
of  viruses.  At  some  point  on  its  journey
around  the  globe  the  covid­19  virus  re­
invented  itself.  The  new  Omicron  variant
will further entrench China’s tight restric­
tions  on  business  travel.  Indeed  it  may
cause more disruption to China’s economy
than  to  other  gdp heavyweights.  That  is
not  because  the  virus  will  spread  more
widely  in  China.  On  the  contrary.  It  is  be­
cause  the  government  will  try  so  hard  to
stop it from doing so.
Since the end of May, China has record­
ed  7,728  covid­19  infections.  America  has

recorded15.2m.AndyetChina’scurbson

movementandgatheringhavebeentight­

er,especiallynearoutbreaks(seechart1).

Itspolicyof“zerotolerance”towardsco­

vid­19alsoentailslimitedtoleranceforin­

ternationaltravel.It requiresvisitorstoen­

durea quarantineofatleast 14 daysinan

assignedhotel.Thenumberofmainland­

ers crossingtheborder has dropped by

99%,accordingtoWind,a dataprovider.

Theserestrictionshavestoppedprevi­

ousvariantsfromspreading.Butperiodic

locallockdownshavealsodepressedcon­

sumption,especiallyofserviceslikecater­

ing.Andtherestrictionsoncross­border

travelwillinflictunseendamageoninno­

vation.Cutting business­travelspending

inhalfisasbadfora country’sproductivity

ascuttingr&dspendingbya quarter,ac­

cordingtoonestudybyMariacristinaPiva

oftheUniversitàCattolicadelSacroCuore

inMilanandherco­authors.

IftheOmicronvariantismoreinfec­

tiousthanotherstrains,it willincreasethe

likelihoodofcovid­19outbreaksinChina,

leadingtomorefrequentlockdowns.Ifthe

restrictionswereassevereasthoseChina

brieflyimposed inmid­August, whenit

wasfightinganoutbreakthatbeganinthe

cityofNanjing,thetollongrowthcouldbe

considerable. If imposed for an entire

quarter,thecurbscouldsubtract almost

$130bnfromChina’sgdp, accordingtoour

calculations based on a model oflock­

downsbyGoldmanSachs,a bank—equiva­

lenttoaround3%ofquarterlyoutput.

OmicronisnottheonlythreattoChi­

na’seconomy.Evenbeforeitsemergence,

most forecasters thought that China’s

growthwouldslowto4.5­5.5%nextyear,

asa crackdownonprivatebusinessanda

propertyslowdownbite.

Worsescenariosareimaginable.IfChi­

nasuffersa propertyslumpasbadasthe

one it endured in 2014­15, gdp growth

couldfallto3%inthefourthquarterof

H ONG KONG
How invariant is China’s economic policy?

→Alsointhissection

74 Threehazardsforemergingmarkets

78 Theperverseeffectsofcarbonpricing

78 Indiaopensup—abit

79 Buttonwood:CleaningupSPACs

80 DilemmasforNorway’soilfund

81 Freeexchange:Policingstablecoins

Trigger happy

China, effective lockdown index*

0=no restrictions, 100=no movement

Source:GoldmanSachs *Seven-day moving average

1

100

80

60

40

20

0

2020 2021

Nanjing outbreak