Coronavirus: Beijing outbreak ramps up pressure on China’s economic momentum

·4-min read

China’s economy is expected to take a further hit as authorities in Beijing rush to contain a coronavirus outbreak with mass testing and tough restrictions that have left streets and shops empty in the capital during the five-day Labour Day holiday.

Activity in both China’s manufacturing and services sectors fell to its lowest point in more than two years last month, data released on Saturday showed, in the latest sign that the government’s hardline zero-Covid policy is wreaking significant damage to the world’s second biggest economy.

China is battling its biggest virus surge since the initial Wuhan outbreak in 2020 and numerous cities have responded with travel restrictions and lockdowns. Beijing has started testing nearly all of its 20 million residents for Covid-19, banned restaurant dining and closed theme parks and museums.

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“We are of the view that the ongoing pandemic remains the major headwind as balancing Covid-19 suppression weighs on China’s growth momentum due to the stoppages of consumption and production,” said Banny Lam, head of research at CEB International, on Tuesday.

China’s official non-manufacturing purchasing managers’ index (PMI), which measures business sentiment in the services and construction sectors, dropped to 41.9 in April from 48.4 in March. This represented the lowest reading since February 2020 and the second lowest on record.

The Caxin services PMI, which focuses more on small firms in coastal regions, for April will be released on Thursday. A survey of analysts by Bloomberg expects a fall from 42 in March to 41 last month.

Beijing residents have been encouraged to stay at home during the Labour Day holiday, which began on Saturday.

At the Viva shopping centre, located in a large residential area near Beijing’s central business district, few customers could be seen on Sunday morning.

“It’s mostly us,” said a sales assistant at the BLT supermarket, an upmarket imported goods retailer under the state-owned China Resources Vanguard.

“We don’t expect a lot of customers [during the Labour Day holiday]. It’s just safer for them to stay at home now.”

At Le Petit Pain, a cafe near the shopping centre, dining services had been suspended.

“It’s not great for us, we are only a small cafe, although we can still offer delivery for now,” said an assistant. “But we don’t expect a lot of online orders for our espresso.”

To visit public parks or shops during the Labour Day holiday, residents are required to show a negative result from a PCR test within 48 hours.

Residents in 12 districts in Beijing will be tested for the coronavirus each day for three days from Tuesday, as the city attempts to stamp out an outbreak that has logged more than 400 cases since April 22.

Starting Thursday, residents will be required to show a negative PCR test result within seven days to use public transport.

“To sum up, the impact of the epidemic on the economy is still ongoing,” said Haitong Securities on Saturday.

“Small enterprises continue to be weak and the impact on large companies has begun to appear. In April, large enterprises fell into the contraction range for the first time since the Wuhan outbreak [in 2020].”

The official manufacturing PMI fell to 47.4, from 49.5 in March, which was also the lowest reading since February 2020.

‘No income, so what’s the point of a tax cut?’: China’s firms bemoan support

Many companies have had to halt production as a result of China’s Covid-19 control measures, while construction, a go-to tool used by Beijing to steady economic growth, has also taken a hit.

“The employment index in the construction industry in April was 43.1 per cent, a decrease of 7 percentage points from March,” said Haitong Securities.

High-frequency data has also shown that the rate of cement shipments and the volume of construction steel transactions fell significantly in April compared to the same month in recent years, Haitong Securities said.

On Friday, the 25-member Politburo, the centre of power within the Communist Party headed by President Xi Jinping, vowed to speed up delivery of tax cuts and support policies.

It also promised to use new monetary policy tools and investment to shore up the economy.

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