Can a Covid-zero China policy lift up the world?

Deciphering China has become nearly impossible. Officials continue to insist on the viability of their Covid-zero strategy, curtailing people’s movements and sealing borders even as the rest of the world has all but moved on from the pandemic. Trying to predict when Beijing will give up on this widely criticised policy is pointless.
Of key interest now is what’s happening on the factory floor of the world. Will it — or won’t it — continue to create and buoy global supply and demand? Most China watchers warn about deteriorating indicators.
In the first three months of the year, manufacturing weakened, with factories closed and fewer workers on production lines. Industrial output fell in April, data this week showed.
To deal with this, officials have unveiled detailed guidelines to help companies prepare for workers to temporarily live on-site, implementing PCR testing circles and issuing so-called white lists to allow certain important sectors to open up. Electronic passes for freight vehicles and workers, fixed routes and other such measures have also been introduced.
A closer look at the data shows the emergence of a clear trend: Beijing is ensuring the movement of goods — domestically and internationally. Carefully calibrated policies are skewed toward making the system productive.
The same can’t be said for people. Traffic congestion, air travel and passenger trips aren’t going to be a significant factor in reading China’s economic state or the extent of its recovery. Indicators like retail sales and services sector data currently look dismal.
The industrial side, though, is a different picture: An index of road freight transport improved in the first week, and express deliveries followed suit. At the Shanghai airport, cargo handled in the first 10 days of May recovered sharply — up almost 60% from a year earlier. Similarly, activity increased at the city’s port, one of the busiest in the world in normal times.
Data show that companies in priority sectors, while facing cost inflation issues like their peers globally, continue to churn out goods. Fixed asset investment in the high-tech manufacturing sector rose 15.6% from a year earlier. Auto sales may have plunged by 47.6% in April, but those of electric vehicles — a key policy focus — rose 44.6%.
No doubt, exports also fell sharply last month, but that’s likely because consumer demand overseas is stabilising after the post-pandemic buying euphoria, and inflation is biting.
There is also the danger that some policies are so finely tuned they risk slowing down China’s supply chains. Selectively allowing sectors to open up overlooks the fact that certain industries have multiple tiers of suppliers that need to restart their factories. Allowing just the top levels to get going won’t help. Still, companies are coming up with their own ways to cope with constraints.
Shenzhen Inovance Technology Co, a key supplier of industrial machinery parts, had workers living at its factory and received approval to resume operations. The company has tried to make the process of switching suppliers to deal with the snags more efficient.

—Bloomberg