Shanghai lockdown highlights China’s deep economic problems

New Delhi, April 8: With the Chinese economy being hit by stringent Covid-19 restrictions almost since the start of this year, Beijing is now set to offer a host of stimulus measures to cushion growth. The second round of liquidity infusion from the country's banks could be announced in the coming weeks, a source familiar with direct knowledge told India Narrative.

China is facing one of the worst outbreaks of Covid 19 after successfully managing to contain its spread since 2020. Home to about 25 million people and a global financial hub, Shanghai--now the Covid 19 hotspot, has been under complete lockdown. Many have termed China's Covid 19 approach absurd and draconian after infected children were separated from parents. While after "huge" pressure Shanghai had to revoke the decision.

Shanghai's new Covid-19 infection figure of 17,007 on Tuesday was the highest single day record since the outbreak of the virus in Wuhan in 2020. On February 12, 2020, Wuhan recorded 13,436 fresh cases. But China's zero Covid approach has created discontent among many residents and businesses.

Shanghai, with a GDP of $680 billion in 2021, has the largest port in the world.

The South China Morning Post in a report said that "European businesses in China are crying out in the face of supply-chain disruptions and a growing disconnect from their customers and headquarters, as the nation's prolonged zero-Covid campaign makes their daily operations 'unplanned and unpredictable'."

Slowing economy, a cause for concern

The rise in the Covid 19 cases in several parts of China along with the Russia-Ukraine conflict have dealt a big blow to the economy, which has been slowing after a stunning 18.3 per cent recorded in the January to March quarter of 2021. In the April-June quarter, the growth rate stood at 7.9 per cent and subsequently during the third quarter it further slowed to 4.9 per cent.

In the final October-December quarter of 2021, the economy grew at a mere 4 per cent.

"There are concerns over slowing economic growth. It is almost certain that major steps will be taken to support the economy, we can expect more money to pour into the system," Aravind Yelery, senior research fellow at the Peking University and visiting faculty at Fudan University in Shanghai told India Narrative.

There could be further easing of regulatory norms for borrowers as well, something that is expected to boost consumption.

Tang Jianwei, chief researcher at the Financial Research Center of Bank of Communications in Shanghai told Beijing based newspaper Global Times that households and companies hard hit by the pandemic deserve deferrals of loan repayments.

The newspaper reported that a few Chinese banks have already allowed people in areas severely affected by the epidemic to delay mortgage loan payments and offered credit support.