Will President Xi Jinping’s harsh zero-Covid plan hijack the global recovery?

China’s zero-covid strategy threatens to derail a global economy already battered by inflation and an energy price crisis caused by the war in Ukraine.

Concerns mounted this week after China’s GDP fell well short of official targets, suggesting measures are holding back growth.

GDP grew just 3.9 percent in the third quarter of the year, figures released yesterday — well below the 5.5 percent target, as shoppers have been confined to their homes for extended periods of time.

This followed an anemia growth of just 0.4 percent in the second quarter as the country was ravaged by lockdowns in major cities. Despite this, the country’s ruling Communist Party seems determined to double down on policy regardless of the economic damage.

In a speech opening a major party congress earlier this month, President Xi Jinping claimed that the zero-covid strategy — in which millions of citizens are subjected to strict and often abrupt lockdowns, quarantines and testing regimes — was an “all-out people’s war.” to stop the spread of the virus.

A party spokesman added: “We all wish a speedy end to the pandemic. But as things stand now, it’s dragging on. That’s the reality.’

Congress saw nearly 2,300 delegates hand Xi an unprecedented third five-year term as party leader, making him the most powerful Chinese ruler since Mao Zedong.

It also means his strategy to fight Covid will meet little resistance at the top of the party, which is almost completely dominated by loyalists after a reshuffle.

The harsh measures, which have been in effect to varying degrees since the first Covid outbreaks in the Chinese city of Wuhan in late 2019, have taken a heavy toll on the Chinese economy.

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The misery of the world’s second largest economy has spread to the rest of the world because of China’s status as both a manufacturing center and a major consumer of commodities such as coal and iron ore. Rory Green, chief economist for China at research firm TS Lombard, said that among a plethora of economic problems, the slowdown in Chinese demand was “the biggest problem.”

“China is basically in an economic coma under the zero Covid policy,” Green said, adding that one of the main drivers of the global economy was now “a hindrance rather than a contributor.”

He added that the situation would weigh heavily on commodities and technical products such as computer chips, while the slowdown for the European economy would hit exports, including German cars and luxury goods. The comments echoed the World Economic Outlook published earlier this month by the International Monetary Fund (IMF), which said frequent lockdowns due to zero-Covid have “taken a toll” on China.

It added that given the size of China’s economy and its importance to global supply chains, this “would weigh heavily on global trade and activity.” Companies operating in the country have also felt the weight of restrictions.

Tesla electric car maker suffered a production hit at its factory in Shanghai when the city closed earlier this year. In an earnings call last week, Tesla boss Elon Musk said China was going through “some kind of recession.”

Zero-Covid also has political implications. The party congress experienced a rare public outcry when a mysterious person hung banners across a bridge in Beijing calling for an end to Xi’s policies and overthrow. It follows protests and riots in Shanghai earlier this year when lockdown measures were reintroduced as the government battled the Omicron variant of Covid.

And as the Chinese economy withers under the weight of the pandemic response, supply chains are once again disrupted by the return of restrictions in key trade hubs, including Shanghai, Ningbo and Tianjin. Meanwhile, the country-stricken real estate sector has the potential to send shockwaves across the global financial system, with the IMF warning that the crisis could “spread” into the domestic banking sector, potentially triggering “negative cross-border effects”.

Asia-focused international banks such as HSBC and Standard Chartered are also expected to write off large loans to Chinese real estate developers to reduce their exposure to the recession.