Chinese Zero Covid Policy Hinders Global Supply Chain, says Powell

China’s stringent zero-Covid restrictions have affected the American economy by dragging on global supply chains, the top central banker of the United States said, reports South China Morning Post.

When China has shutdowns in regions that are deeply connected to the world economy, supply chains are less efficient, less effective and the prices of goods manufactured or assembled in the country are affected, said US Federal Reserve chairman Jerome Powell.

“It does have an implication for the US,” he said at an event where he gave a closely watched speech before policymakers enter a quiet period before the December 13-14 gathering on the next interest rate decision.

Powell added, “It’s hard to say how big that will be without knowing how persistent, how long the lockdowns will last”.

He spoke as signs increased that Beijing’s zero-Covid policy was taking a toll on the world’s No 2 economy, leading to weaker consumer demand, disrupted production and sluggish expectations.

The latest official surveys showed that both China’s factory and services activities contracted to seven-month lows and worse than market estimations in November.

Experts warned that the inevitable costs of Chinese cities being forced to impose restrictions amid a surge in coronavirus cases have already started to appear.

The International Monetary Fund last week urged Beijing to recalibrate its Covid-19 policy to the economy while relying on market reforms to raise productivity and deliver medium and long-term growth.

Analysts now expect the Chinese economy to grow only 3.3%YoY in 2022, far below the official target of around 5.5% set by the central authorities in March.

The investment bank Nomura said that weaker demand from China would exacerbate the export downturn and add to disinflationary pressures for the rest of Asia.

On November 23, Nomura cut its forecast for China’s fourth quarter growth rate to 2.4% from its previous estimate of 2.8%. It also trimmed the forecast for China’s annual economic growth rate in 2023 to 4.0% from 4.3%.

After protests in several major Chinese cities over the weekend, the country’s central and local authorities appeared to have taken steps to improve their coronavirus strategy.

The cities of Guangzhou and Chongqing announced an easing of Covid restrictions on Wednesday; a move also seen in Shijiazhuang, which at one point was expected to be a pilot city for reopening.

When meeting with health officials and experts on Wednesday, Chinese Vice-Premier Sun Chunlan, the most senior official in-charge of Covid response, uncommonly highlighted that the pathogenicity of the Omicron variant weakens and said the country was facing a new situation and new tasks in pandemic controls.