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'Zero COVID' and Xi's ambitions may slow China's economy in 2022

BEIJING – China’s economy is expected to slow down ahead of the ruling Communist Party’s twice-a-decade congress in fall 2022 as President Xi Jinping’s radical “COVID zero” policy and socialist ambitions are set to choke private spending in the country.
Even after the end of the Beijing Winter Olympics, slated to start Feb. 4, the Communist Party-led government is likely to continue implementing strong anti-epidemic measures, including locking down major cities and suspending all public transportation services.
To make an achievement in the economic field to secure a controversial third term as party leader at the congress, Xi would also promote “common prosperity,” aimed at reducing income gaps at home, by levying more regulations on the nation’s lucrative sectors.
Consumption in China has been “tepid” as the movements of people have recovered only to half the level before the coronavirus outbreak began nearly two years ago, said Kokichiro Mio, a senior researcher at the NLI Research Institute in Tokyo.
According to a scholar familiar with the Chinese government’s thinking, “The Communist Party’s COVID zero policy is certain to remain in place almost throughout 2022, given that President Xi has been keen to end the congress successfully after the Beijing Olympics.”
“For at least another year, Chinese citizens and companies would be frustrated by severe restrictions by authorities and lose their motivation to increase spending and investment. This would put serious downward pressure on the economy,” the scholar, speaking on condition of anonymity, added.
The world’s second-largest economy grew 8.1% in 2021 from the previous year with domestic demand recuperating from the coronavirus shock, marking the biggest expansion in 10 years, government data showed Monday.
The economy, however, edged up only 4% in the October-December period of 2021 alone, as the outlook has become dim amid mounting fears about another wave of infections, first detected in the Chinese city of Wuhan in late 2019.
In Xi’an, more than 2,000 people have been infected with the virus for around one month since early December, prompting municipal authorities to lock down the central city of 13 million since the middle of the month.
Tianjin, known as a key gateway to Beijing, has also conducted COVID-19 nucleic acid testing targeting all of its 14 million residents since earlier this month, after community infections with the highly contagious omicron variant were identified.
Beijing has also not been spared, with the city government saying Saturday that it had detected its first omicron case.
In Shanghai, China’s largest commercial hub, some restaurants and stores have been closed since infections were confirmed there.
 “We are not in a situation where we can do business as usual,” said Hiroyuki Tanaka, a 36-year-old Japanese employee in the city. “What we have to do is to stay in Shanghai and stay home.
“Many Chinese people have refrained from going outside and they have tightened their purses as they are feeling anxiety about the future,” he said. “Under such circumstances, it is very difficult for the Chinese economy to maintain growth momentum.”
In January, the World Bank said in a report that it cut its forecasts for China’s economic expansion in 2022 to 5.1%, down from 5.4% against a backdrop of the pandemic.
“I think the pace of China’s economic growth would be much slower than the World Bank estimates,” Tanaka said. “I don’t know what can be an impetus to the Chinese economy this year unless the coronavirus crisis recedes.”
Xi’s push to attain common prosperity has been also fanning concern that the most populous country would become a less attractive market, as the goal may place heavy burdens on the rich so that the government can coercively rectify economic inequality.
Drastic policy changes designed to put emphasis on income distribution might “hinder technological progress based on the free ideas of the private sector,” said Kenta Maruyama, an economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo.
Indeed, the Communist Party has been bolstering surveillance of the nation’s IT giants to curb their monopolistic behavior and disorderly capital expansion, sparking worries that innovation of the Chinese high-tech industry could be impeded.
Chinese big enterprises and business leaders are also believed to be compelled by the central authorities to take steps that could contribute to narrowing income disparities, such as making donations and providing social support.
“If the government uses common prosperity as a means of power struggle and moves ahead with it in an unpredictable way, that could put a sharp brake on the Chinese economy. Common prosperity is a double-edged sword,” Maruyama said.
Some observers, meanwhile, said a potential escalation of tensions between China and Taiwan would make foreign firms — especially those in democratic countries — reluctant to invest in the mainland, which would deal a crushing blow to the broader economy this year.
Speculation is rife that Xi’s leadership could take military action against democratic Taiwan to unify the self-ruled island with the mainland, in the run-up to the party congress where he would attempt to lay the groundwork to hold on to power for life.
 Chinese People’s Liberation Army soldiers stand before a giant screen as President Xi Jinping speaks at a military parade marking the 70th founding anniversary of the People’s Republic of China on Oct. 1, 2019, in Beijing. | REUTERS
But Jeff Kingston, director of Asian Studies at Temple University Japan, threw cold water on such a possibility.
“There is little chance of an invasion of Taiwan because it is a high-risk option that could backfire on Xi,” he said.
China and Taiwan have been governed separately since they split in 1949 as the result of a civil war. Their relations have deteriorated since independence-leaning President Tsai Ing-wen became the island’s leader in 2016.

Japan Times
Jan 18, 2022 12:55
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