China's zero- Omicron approach impacting its economy, supply chains

Hong Kong, January 17 : China's unwavering insistence on stamping out any trace of the coronavirus with a zero-Omicron approach is risking a big hit to the economy and supply chains.
Goldman Sachs, for example, has just slashed its projection for Chinese economic growth in 2022 to 4.3 per cent from 4.8 per cent. That's roughly half what they estimate last year's growth rate to be. (China will report fourth-quarter and full-year GDP figures for 2021 on Monday), reported CNN.
Morgan Stanley is taking a similar view that Omicron could mean the costs of a zero-Covid approach outweigh the benefits. Last week its analysts forecast growth of 4.9 per cent in the first quarter, but suspect it could slow to 4.2 per cent "should Omicron spread to other regions and lead to multiple city-wide lockdowns," reported CNN.
The analysts cited a "deeper disruption to services" as a top risk for China if the country extends containment measures to several cities. That would mark China's most severe and widespread attempt to contain the coronavirus since April 2020, when it lifted its massive lockdown on Wuhan, the original epicentre of the virus.
The COVID-19 Omicron variant has been cropping up across China in recent days, including in major port cities like Dalian and Tianjin, prompting restrictions that could upend business operations in those places.
As the rest of the world learns to live with the virus, economists say China's zero-tolerance strategy is likely to do more bad than good in 2022, Omicron could deal a blow to factories and supply chains, compounding the economic threat, reported CNN.
An outbreak of the older Delta variant forced the industrial hub of Xi'an into lockdown earlier this year, affecting production lines of global chip makers like Samsung (SSNLF) and Micron (MU), reported CNN.
And then there are the Omicron cases detected in major port cities. Ship congestion at Chinese ports has worsened recently as more cities implement strict COVID restrictions because of the outbreaks, or as they tighten testing policies ahead of the Chinese New Year holiday season starting January 31.
The Shekou terminal in Shenzhen, for example, has begun restricting truckers bringing in loaded containers. Starting Friday, truckers can only enter the terminal if they have bookings for export-bound containers on vessels arriving within three days, the operator said in a statement this week, reported CNN.
The economic cost of containing an aggressive variant could be great. Analysts at Nomura wrote this week that retail sales and other services could take a big hit if there are more lockdowns, adding that the benefits of zero- COVID are "likely diminishing while costs are rising." They forecast GDP growth of 2.9 per cent for the first quarter, and 4.3 per cent for the entirety of 2022, reported CNN.
Eurasia Group president Ian Bremmer and Chairman Cliff Kupchan, meanwhile, labelled the failure of China's zero- COVID policy as the top global geopolitical risk for 2022, suggesting that a breakdown could lead to larger outbreaks, more severe lockdowns and greater economic disruption.
"It's the opposite of where Xi Jinping wants his country to be in the run-up to his third term, but there's nothing he can do about it," they wrote in their forecast this month.
China will be hosting the 2022 Winter Olympics in February, making the containment of Omicron important in the near term. Chinese President Xi Jinping is also widely expected to seek a historic third term in office when the Chinese Communist Party holds its 20th Party Congress in the second half of this year.