It was only 2 years ago when the COVID pandemic started and the individual countries gradually went into lockdowns. The economy was completely shut down and economic damage was enormous. Even today, the economic damage is still being felt as small businesses are forced to go out of business. The lockdown that probably hit the world the hardest was that of the Chinese. Since nearly everything is now produced in China, it is only natural that a weakening of the Chinese economy will inevitably have an impact on the entire world. From medical supplies to electronics, shortages were everywhere and supply chains were interrupted for an uncertain period of time.
These supply chain problems are still an issue today, especially since politicians and bankers blame rising inflation less on disrupted supply chains and less on their own shortcomings.
Now, this very scenario could happen again, as new COVID cases are being reported in more and more Chinese cities. Xi’An is the latest example, as once again a city of millions has been sealed off. The next city to report new cases is Tianjin, and now the financial metropolis of Shanghai, Guangdong province, home to the tech hub of Shenzhen, and the capital Beijing have also reported cases.
The question the world is now asking is whether the Chinese government will maintain the zero COVID policy it is following now that its major hubs are reporting COVID cases?
Looking at the economic figures reported from China, GDP grew by over 8% in 2021 compared to 2020. But especially in the fourth quarter of 2021, a slowdown in growth was seen. GDP grew only 4% in the fourth quarter compared to the third quarter when growth was 4.9%. The rising COVID cases are said to be a major reason for the slowdown, but the shaky housing market is also weighing heavily on the economy with more and more companies reporting defaults on their debts.
Fittingly, the Chinese government recently decided to lower interest rates to counteract the slowdown and provide cheap currency to the economy.
If there are major lockdowns in Chinese hubs, supply chain problems can be expected again. Many companies have already seen the problem in 2020 that relying solely on China to produce all goods could be a risky strategy. These could now be hit hard again after many continue to stick to the strategy. It remains to be seen what measures will be taken to contain the local outbreaks. However, the world has been at this point before and has already experienced this scenario.