Two words are forcing American companies to radically rethink their investment plans in China.
As the world’s second-largest economy “stalls,” pressure is building on President Xi Jinping’s controversial “zero-Covid” policy and incessant flash lockdowns.
The situation has even caused a crisis of confidence among firms linked to the US-China Business Council. More than half of its members have either “paused, delayed” or shelved investment in the country.
There have also been rumblings of discontent domestically. Earlier this week, a Chinese think tank warned of the damage being inflicted on the economy by vice-like Covid curbs.
“China is at risk of stalling. Preventing [that] risk should be the priority task,” Anbound Research Center said in a report entitled, It’s Time for China to Adjust Its Virus Control and Prevention Policies.
Pressure points:
- China’s “zero-Covid” redline has become a sensitive subject.
- The Anbound Research Center study was posted on the Twitter-like Weibo site on Sunday.
- It was deleted 24 hours later, the Associated Press reported.
- Already there are fears that China is facing an economic crisis on an unparalleled scale.
- Unemployment is soaring, the property sector is in meltdown and consumer spending is on life-support.
- Business confidence has also been hit as factory activity declines.
Trick will be to maintain political [and] social stability as it happens.
China Beige Book
Delve deeper: Major Chinese cities are again on “zero-Covid” alert. On Tuesday, high-tech metropolis Shenzhen closed down businesses while Dalian locked down millions. Mass testing is also being enforced nationwide.
Between the lines: The fallout has left the economy reeling after years of spiraling local government and corporate debt. Underlying problems in the property and banking sectors have only added to a toxic mix.
Big picture: “We keep hearing everyone say how desperately there needs to be a policy solution to this slowdown. The Party needs to … do something,” China Beige Book tweeted.
Wait for it: “But that’s incorrect, the slowdown is the solution. It’s baked. Trick will be to maintain political [and] social stability as it happens,” the research group pointed out.
Postscript: “China’s economy is weak – much weaker than markets understood at various times during the [first half] of 2020,” China Beige Book stated last week in a key report.
China Factor comment: The red tide is turning around the House of the Dragon, heralding a new wave of economic uncertainty.