Covid-19 resurfaces in China: a very different Lunar New Year ahead
by Guillaume Dhamelincourt, Business Development–Product Specialist, JK Capital Management Ltd., a La Française group-member company
From the summer of 2020 until the end of the year China has enjoyed a long Covid 19 free period, thanks to its drastic handling of the crisis early on. This allowed the economy to recover and grow while the rest of the world was having hard times getting the pandemic under control. However, over the past few weeks, China has seen a resurgence of locally transmitted infections. It started with some cases in Beijing and it spread to a few provinces where clusters have been reported. Between 2nd and 28th January, more than 2,600 new cases were confirmed in northern China’s Hebei and northeast China’s Heilongjiang and Jilin provinces. This put the authorities on high alert as the timing could not be worse with the Chinese New Year (CNY also called Lunar New Year) holidays starting on 12th February.
CNY is the most important holiday and most celebrated event of the Chinese calendar. It is a week-long celebration during which families assemble and celebrate. For many of China’s 300 million migrant workers, this is when they do their once-a-year trip back home to celebrate. CNY is often seen as the biggest human migration in the world, year after year. In 2019 it was a total of 3 billion journeys that had been carried out during CNY. It is typically a week of high consumption and often an opportunity to assess the consumer morale.
But not this year. In light of the spreading infection, the government has recently re-imposed strict lockdown measures on cities/districts that are exposed to virus outbreaks. A number of regions in Northern China have entered into a “wartime mode” since early January 2021. For instance, on 7th January, Shijiazhuang, Hebei’s capital city with 11m residents imposed a lockdown and banned all residents from leaving the city. On 9th January, Xingtai, a city in Hebei province with a population of 7.4m also imposed a lockdown. For policymakers, the virus containment is clearly a much higher priority than economic growth in the near term, and they are now very proficient at mobilising administrative powers to reduce population mobility and to tighten social distancing rules.
The State Council issued a call to the public on 25th January for people to “celebrate in place” and avoid non-essential trips during the Lunar New Year period. In addition, interprovincial travellers will have to present a negative Covid-19 test result from the preceding seven days starting 28th January. The cabinet also urged people to practice 14 days of home quarantine upon arrival and not to attend large gatherings. The phrasing of this last part reflects the softer tone taken by the Central government lately as it tries to set up more normalised approaches for virus control to reduce the impact on social and economic activities. But for many localities which do not have the means of a softer approach that larger cities do (mass testing often requires logistics that smaller cities and villages typically do not have), the guidelines given by the Central government often translates into locally-enforced drastic quarantine measures as such smaller cities and towns feel under a lot of pressure to contain any spread.
With such measures in place, few will attempt to travel. The latest estimates are that only 1.1bn journeys will be taken during this CNY, down from 3bn in 2019 and 1.5bn in 2020 when the first wave was in full strength. The actual number may likely be even lower. The hospitality and transport sectors will no doubt be impacted together with several other discretionary spending areas. On the other hand, industrial activity will be stronger than usual as workers are being asked to remain in their factories at a time when many of these factories are operating at full capacity. Several cities have offered RMB500 to RMB1000 as compensation to each migrant worker who has decided to stay. Furthermore, overtime work during Chinese New Year is typically paid three times more than under normal circumstances.
The overall GDP growth of the quarter will likely reflect these exceptional measures. The YoY comparison will also be impacted by last year’s low base.
China’s objective remains similar to what it was in 2020: To eliminate all domestic cases, whatever the cost. It is the reason why it is implementing once again aggressive and strict measures with little regard for celebrations, domestic spending or economic growth. The 2020 waves proved this was the right approach for the country as it shortened the length of the pandemic and allowed for a speedy economic recovery. The authorities hope to repeat this success this year.
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