Speaker 1: mm hmm.
Speaker 1: Hello and welcome to day five things you need to
Speaker 1: know about the impact of the zero Covid policy on
Speaker 1: the chinese economy. I'm sona Ramesh from money. Mind I'm
Speaker 1: joined by Tommy wu lead china economist at capital Economics
Speaker 1: and Shirley, you senior fellow at the Ash center at
Speaker 1: the Harvard Kennedy school. Now there's been a stream of
Speaker 1: disappointing data out of china
Speaker 1: unemployment, rising retail sales down, we have factory activity down
Speaker 1: and new home prices also down all these signs of
Speaker 1: an economic slowdown. I think china's
Speaker 2: economy is
Speaker 1: already in a
Speaker 2: slowdown or actually
Speaker 1: in a contraction, especially in april and perhaps in
Speaker 2: May, I would
Speaker 1: expect the prolonged
Speaker 1: shanghai
Speaker 2: lockdown to have an impact
Speaker 1: on shanghai itself,
Speaker 2: but then also in other
Speaker 1: parts of the
Speaker 2: country, especially on the
Speaker 1: coastal provinces in terms of how it's going to
Speaker 2: affect industrial
Speaker 1: production as well as exports because
Speaker 2: of all the
Speaker 1: prolonged restrictions, not
Speaker 2: necessarily lockdowns
Speaker 1: but restrictions in other parts of the
Speaker 2: country. Household consumption and consumer
Speaker 1: sentiment are
Speaker 2: pretty weak at the moment.
Speaker 1: So I would say that in
Speaker 2: the second quarter
Speaker 1: will perhaps see a quarter on
Speaker 2: quarter contraction before
Speaker 1: seeing things to improve. In
Speaker 2: the second half,
Speaker 1: the chinese economic slowdown is partly structural and partly cyclical
Speaker 1: of the three drivers of the chinese economic growth trade,
Speaker 1: particularly export is going to continue to retrench. In 2022
Speaker 1: the easy money that has boosted the Western consumption in
Speaker 1: the past couple of years is basically gone. So the
Speaker 1: global demand for chinese goods will continue to weaken and
Speaker 1: a lot of the chinese export in the low to
Speaker 1: medium end of the global supply chain will continue to
Speaker 1: shift towards asean. So we're going to see high export
Speaker 1: growth in south Korea. Vietnam substitution effects of the chinese
Speaker 1: products overseas. And that is the structural part. China's consumption
Speaker 1: growth has been stagnant on real terms
Speaker 1: in the past couple of years since the covid outbreak
Speaker 1: And now it's coupled with rising unemployment and particularly in
Speaker 1: the high tech high paying jobs. And so that is
Speaker 1: not good for Chinese consumption. And we are continuing to
Speaker 1: see rising challenges of youth unemployment, particularly for college graduates.
Speaker 1: And so none of this is conducive for China's economic
Speaker 1: growth in 2022.
Speaker 1: Well that data is certainly not looking very conducive. So
Speaker 1: how bad could it get? I mean, are we looking
Speaker 1: at a recession here Tommy? Perhaps
Speaker 2: the worst is behind us
Speaker 1: now, shanghai is looking
Speaker 2: to reopen
Speaker 1: gradually in
Speaker 2: june
Speaker 2: and barring another significant city wide lockdown in the second half.
Speaker 2: The chance of seeing a recession which means two quarters
Speaker 2: of quarterly contraction. It's pretty slim. So I would say
Speaker 2: that there will be a contraction in the second quarter
Speaker 2: but there should be a more significant recovery starting from
Speaker 2: the third quarter.
Speaker 2: If we measure recession using the western definition that is
Speaker 2: two consecutive quarters of negative GDP growth. I don't think
Speaker 2: it's likely to happen in china. I don't think the
Speaker 2: chinese leadership will allow the scenario to happen. The first
Speaker 2: quarter performance is soft but it's so positive. China can
Speaker 2: always use monitoring in the
Speaker 1: fiscal stimulus to
Speaker 2: deliver some immediate economic impacts
Speaker 2: if it needs to. However, the key really to induce
Speaker 2: long term sustainable
Speaker 1: economic growth for china
Speaker 2: is to continue to innovate and continue to deepen reforms.
Speaker 2: The capital market reform is going to be a major area,
Speaker 2: including the full adaptation of the registration based I. P. O.
Speaker 2: System this year comparing to china's residential
Speaker 2: real estate market size. The chinese stock market size is
Speaker 2: actually tiny. It speaks to china's urgent need to broaden
Speaker 2: and widen the capital market reform in order to continue
Speaker 2: to finance not only china's take rights but also the
Speaker 2: aging population and really the key is also to revitalize
Speaker 2: china's private sector
Speaker 2: Real estate supply chain consists of 20
Speaker 1: percent of china's
Speaker 2: GDP in china's real estate sales revenue in april declined 46.6%
Speaker 2: from a year ago. This scale of decline eclipses the
Speaker 2: worst of the real estate bubble burst in the United
Speaker 2: States between oh six and oh eight and so it
Speaker 2: is a dire situation there. So it's really important to
Speaker 2: restore the confidence for not only the real estate developers,
Speaker 2: but also the local governments and most importantly the consumers
Speaker 2: and it's important to restore the confidence in china's rising
Speaker 2: big takes that have been under heavy crackdown since last year.
Speaker 2: We need to ensure that the tech entrepreneurs
Speaker 1: continue to innovate innovation curve is long? It takes years
Speaker 1: to come to fruition for some of the R and D.
Speaker 1: So I think if china can continue to unleash the
Speaker 1: private sector vitality, the economic fundamentals will stay intact.
Speaker 1: A fundamental part of Chinese economic policy is the annual
Speaker 1: growth target and that's currently 5.5% for 2022. Can China
Speaker 1: meet the target this year. Shirley, what's your take?
Speaker 1: I think meeting the 5.5% GDP growth target is challenging
Speaker 1: and it's highly uncertain at this point. One big variable
Speaker 1: is how quickly china can come out of the zero
Speaker 1: covid policy in another big variable is to what extent
Speaker 1: the global economy will suffer
Speaker 2: from the Fed's
Speaker 1: unprecedented quantitative tightening. And so china wishes to double its
Speaker 1: GDP over the next 15 years, which implies a 4.7%
Speaker 1: GDP growth per annum over the next decade and a half.
Speaker 1: And so there is still some room for a really
Speaker 1: bad year. If 2022 happens to be one and if
Speaker 1: that happens, I'm sure china will spare no efforts to
Speaker 1: deliver large scale stimulus. So, to sum up the chinese
Speaker 1: economy is feeling the full brunt of zero covid,
Speaker 1: things aren't
Speaker 2: Expected to get better before the second half of the year.
Speaker 2: And that's gonna be a big challenge to hit that
Speaker 2: growth target of 5.5%.
Speaker 2: So if zero Covid is a problem for the
Speaker 1: economy is the
Speaker 2: solution to just well move away from zero Covid or
Speaker 2: do you think that this creates
Speaker 1: a different set of
Speaker 2: problems Tommy. I don't necessarily think that by abandoning the
Speaker 2: Zero Covid policy right now would actually be a good
Speaker 2: thing for china because of the
Speaker 2: low vaccination rates among the elderly. Which means that by
Speaker 2: opening up right now perhaps the rate of infection and
Speaker 2: also the death rate will be very high and also
Speaker 2: it will be overwhelming the public health system at this
Speaker 2: moment because of the efficacy issue of the domestic vaccines,
Speaker 2: it will require three shots
Speaker 2: in order for the general population to be
Speaker 2: safe against the omicron variant,
Speaker 2: only about a little bit more than half of the
Speaker 2: population have already had the booster shot. So I think
Speaker 2: a better timing to actually reopen fully is when everyone
Speaker 2: gets the booster shot
Speaker 2: and basically the vaccination rate among the elderly is high enough.
Speaker 2: And with those preconditions then china will be ready to
Speaker 2: reopen and it won't cause further disruption. The reason I
Speaker 2: said this is because even if you are open today
Speaker 2: with only half of the population having the booster shot.
Speaker 2: This also means that if there's a you know a
Speaker 2: significant reopening moving away from zero Covid, there will still
Speaker 2: be lots of workers absent from work because they got infected,
Speaker 2: they got sick and they cannot go to work. So
Speaker 2: the impact on the supply change. It's still highly unpredictable.
Speaker 2: Even if we abandon the zero covid today within china.
Speaker 2: What
Speaker 1: about the impact of china's slowdown on
Speaker 2: ASia and the rest of the world? Is it all
Speaker 2: bad
Speaker 1: news
Speaker 2: with the supply disruptions within china particularly the logistics disruption
Speaker 2: because of the covid restrictions. It's not just within shanghai,
Speaker 2: say in april and may but it's also there are
Speaker 2: these highway controls in various parts of the country that
Speaker 2: is slowing the logistic recovery within china.
Speaker 2: So the logistics disruptions that's affecting china itself is going
Speaker 2: to have a spillover effect on its exports and its
Speaker 2: exports to Asia. And also the global economy which means
Speaker 2: that a lot of the supply of intermediate goods from
Speaker 2: china will be affected. And also a lot of the
Speaker 2: supply of consumer goods out of china
Speaker 2: will be affected.
Speaker 2: So this will have a profound impact on ASia and
Speaker 2: global supply chain given china is playing an integral part
Speaker 2: of the global supply chain. It is a mixed bag
Speaker 2: with the initiation of the RCEP agreement to the regional
Speaker 2: Comprehensive Economic Partnership. We're starting to see not only Asian
Speaker 2: integration but also a substitution of effects of the chinese
Speaker 2: production supply chain in ASIA and I think the semiconductor
Speaker 2: industry will
Speaker 1: continue to be
Speaker 2: concentrated in south Korea and Taiwan in Asia Vietnam will
Speaker 2: be well poised to replace quite a lot of the
Speaker 2: middle to low end of the chinese production capacity
Speaker 2: and India will rise as a regional tech economy and
Speaker 2: I think Singapore
Speaker 1: will still very strongly
Speaker 2: as an asian financial headquarters and the financial center china's
Speaker 2: slowdown will impact the global supply chain in a fundamental way.
Speaker 2: But it's not all bad stories for all asian
Speaker 1: neighbors to sum up the chinese economy is feeling
Speaker 2: the full brunt of
Speaker 1: zero covid
Speaker 2: restrictions and lockdowns
Speaker 2: and
Speaker 1: things aren't expected
Speaker 2: to get better before
Speaker 1: the second half of the
Speaker 2: year.
Speaker 2: So it's going to be a big challenge to meet
Speaker 2: that official growth target of 5.5%.
Speaker 1: The slowdown will cause
Speaker 2: headwinds for asian economies.
Speaker 1: But there could
Speaker 2: be new business opportunities for some.
Speaker 2: My thanks to my guest today Tommy will lead china
Speaker 2: economist at
Speaker 1: capital Economics
Speaker 2: and Shirley, you senior fellow
Speaker 1: at the Ash center at the Harvard Kennedy school
Speaker 1: and that's the five things that you need to know about.
Speaker 1: The impact of zero covid on china's economy. Money. Mind
Speaker 1: airs every saturday at 10 30 PM on Mediacorp C N. A.
Speaker 1: You can also catch us online at CNN dot ASia
Speaker 1: on youtube.
Speaker 1: Mhm.
Speaker 1: Mhm