Strict COVID-19 controls posing long-term challenge for Chinese economy

The closure of a major seafood market in the Chinese capital looks set to disrupt seafood trade as Beijing edges towards an extended lockdown to contain the spread of a COVID-19 outbreak in the Chinese capital.

Beijing’s Jingshen Seafood Market has been closed since 17 May, after workers there were sickened by a COVID-19 strain traced back to seafood imported into the nearby city of Tianjin. The Beijing Municipal Bureau of Commerce and the Municipal Center for Disease Control and Prevention issued a ban on any activity in the market while also setting stringent testing requirements for truck drivers entering Beijing with food and seafood products.

Seafood producers, processors, and traders in Beijing have already been impacted as many areas of the country have been placed under lockdown, including Shanghai, and severe trading restrictions were instituted to limit the spread of a recent outbreak of the omicron variant of COVID-19. According to the Beijing Municipal Statistics Bureau, the city’s retail sales fell 16.05 percent year-over-year in April, well above the national average contraction of 11.1 percent.

Other Chinese cities look set to enter their own lockdowns, as China’s state broadcaster reported a new outbreak in the port city and manufacturing hub of Tianjin, an hour from Beijing, tracing it back to a worker at a cold storage facility. And in Guangdong, a Chinese man tested positive for a new, more virulent strain of the virus when he arrived in Guangzhou from Nairobi, Kenya, according to the Chinese Center for Disease Control and Prevention. A government-issued lockdown is possible for the key port city and major seafood producing region, according to local media reports.

China has been assisting businesses through tax breaks and deferrals, with resulting damage to government coffers, as its income from taxes and fees tumbled by 41 percent year-on-year in April, according to a Bloomberg calculation.

And the broader economy has been rattled by China’s ongoing efforts to implement its zero-COVID policy. After years of strong growth, China’s online commerce sector has gone through a difficult stretch over the past 12 months, primarily due to logistical troubles that emerged in the wake of China’s numerous lockdowns. On 16 May, the U.S. Chamber of Commerce said China's strict pandemic controls will hamper foreign investment into the country for years to come, as limits on travel prevent deals and due diligence from being done, according to Reuters. In its annual report on the business climate for American firms in China, the business organization said that the unpredictability of movement in China would encourage American firms to look elsewhere.

Chinese economists are noting the COVID-19 crisis has resulted in an escalation of American efforts to decouple itself from China’s economy. At a conference in Beijing recently, Tsinghua University Professor of Economics Li Daokui said one of the reasons the American government was inviting Southeast Asian leaders to the White House this month was to persuade them to pursue becoming alternative locations for manufacturing capacity currently based in China. That movement is already underway, as Chinese manufacturers have themselves moved to the region, partly to dodge U.S. tariffs on Chinese goods, but also to avoid pandemic controls in China.

China’s Ministry of Commerce has noted, for the first four months of 2022, foreign direct investment into China rose by 26.1 percent year-on-year to USD 74.47 billion (the figure also includes Chinese corporations located offshore), with investment from the U.S. up by more than 50 percent, suggesting American companies are maintaining confidence in the Chinese market, but it’s unclear how accurate its data is. Investment research database fDi Markets reported a 50 percent year-on-year fall in investment into China between January and March 2022.

Buoyed by a weaker renminbi, China’s exporters are eyeing carefully if and how tariffs are extended on Chinese imports by the administration of U.S. President Joe Biden. The U.S. government had extended tariffs put in place under the administration of former U.S. President Donald Trump, but Biden is required by law to publish a review of the tariffs this summer. Several American government departments have called for a reduction in the tariffs to ease pressure on prices while raising them on China’s most-heavily subsidized industries. Other U.S. governmental departments, including the Office of the U.S. Trade Representative, want to retain the tariffs as leverage to obtain broader concessions from China.

During a visit to Brussels, Belgium on 17 May to meet with European Union officials, U.S. Treasury Secretary Janet Yellen called for more coordination between Western economies in dealing with China, with the goal of pushing Beijing to come to the table on trade and investment issues, as well as on its development and climate policies.

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