After representatives from the international financial institution met virtually with Chinese policymakers over the span of two weeks, IMF First Deputy Managing Director Gita Gopinath said that the current approach to slowing the spread of the virus has harmed the nation’s economy.
“Under the zero-COVID strategy, China weathered the initial impact of the pandemic well, allowing the economy to recover swiftly from the early-2020 lockdowns and to expand the global supply of medical goods and durable goods significantly at a critical time for the global economy,” she said in a statement. “However, China’s growth has since slowed and remains under pressure amid recurring COVID outbreaks, deep challenges in the property sector, and slowing global demand.”
Gopinath added that the country should move towards a “recalibration” of its zero-COVID policy, and transition away from it in the second half of 2023.
The Chinese economy is expected to grow 3.2% this year and 4.4% for the next two years. The nation averaged nearly 10% annual output growth over the past four decades since free market reforms were implemented, according to data from the World Bank. A number of manufacturers have moved operations away from China even as longer-term factors such as low labor force growth and slowing productivity continue to dampen the Chinese economy.
China has also witnessed a real estate crisis amid declining home prices over the past year. Developers have defaulted on their obligations, leading many to stop work on unfinished housing, which has sparked mass outrage since the majority of Chinese homebuyers begin paying mortgages even before their prospective homes are completed.
“Although the zero-COVID strategy has become nimbler over time, the combination of more contagious COVID variants and persistent gaps in vaccinations have led to the need for more frequent lockdowns, weighing on consumption and private investment, including in housing,” Gopinath continued. “The regulatory tightening in the property sector, while well-intended to rein in high leverage, has added to severe financial strains for developers, leading to a rapid slowdown in housing sales and investment, along with a sharp decline in local government land sale revenues.”
World Health Organization Director-General Tedros Ghebreyesus issued a similar warning earlier this year. Chinese President Xi Jinping, who has staked his reputation on the zero-COVID approach, nevertheless insisted that the strategy is “scientific and effective.” New Zealand and other countries which had pursued zero-COVID policies have long since abandoned the efforts.
At the most recent Communist Party Congress, Xi established a vision to grow his country’s middle class in a speech that opened with a discussion of his geopolitical ambitions, including the defeat of democratic aspirations in Hong Kong and the imminent conquest of Taiwan.
“We will steadfastly push for common prosperity. We will improve the system of income distribution,” he remarked. “We will ensure more pay for more work and encourage people to achieve prosperity through hard work. We will promote equality of opportunity, increase the income of low income earners and expand the size of the middle income group. We will keep income distribution and the means of accumulating wealth well regulated.”
The speech also favorably mentioned the zero-COVID policy. “We have protected the people’s health and safety to the greatest extent possible and made tremendously encouraging achievements in both epidemic response and economic and social development,” Xi continued.