[Correspondent Diary] The Collapsed Guangdong Province and Shanghai

Guangdong and Shanghai Hit Hard by COVID-19... 3.3% and 3.1% Growth in Q1 Respectively
China's Social Lockdown Controls Expected Until 20th Party Congress This Fall

[Asia Economy Beijing=Special Correspondent Jo Young-shin] The economy is like a living organism. It functions properly only when the economic agents, the people, move. If economic agents are confined to a specific area and their activities are restricted, the economy inevitably comes to a halt.

[Image source=AP Yonhap News]

Guangdong Province, a symbol of China's economic growth, has been hampered by the Omicron variant of COVID-19. Guangdong is the embodiment and symbol of China's 40 years of reform and opening up. In terms of GDP size, it is comparable to Italy, a member of the Group of Seven (G7).

In the first quarter of this year, Guangdong's Gross Domestic Product (GDP) was recorded at 2.849879 trillion yuan (approximately 542.3 trillion Korean won), a 3.3% increase compared to the same period last year. This growth rate falls significantly short of the Chinese authorities' target of 5.5% for this year. Around March, Omicron infections were confirmed in cities such as Shenzhen and Guangzhou, leading to city lockdowns and a loss of economic vitality.

The sector that restrained growth was consumption. In the first quarter, retail sales in Guangdong grew by only 1.7% year-on-year. Urban retail sales increased by a mere 0.6%. Within China, there are even forecasts that Jiangsu Province will surpass Guangdong to take the top spot in growth rate.

Shanghai, which is approaching a month of lockdown, is even more affected. In the first quarter, Shanghai's economic growth rate increased by 3.1% year-on-year, which is 1.7 percentage points lower than China's overall growth rate of 4.8% for the same period. This matches Shanghai's pledged growth target of around 5.5% for the year. Retail sales decreased by 3.8% compared to the same period last year.

Inside China, there are projections that if COVID-19 had not spread, Shanghai would have grown by 6 to 7% in the first quarter. This also implies that without the performance in January and February, the growth rate would have been negative.

The problem starts now. Shanghai was locked down on March 28, just four days before the end of the first quarter. As of April 24, Shanghai remains effectively under lockdown. There are forecasts that Shanghai will not return to normal until after June. This means that Shanghai's economy in the second quarter?April, May, and June?will inevitably suffer severely.

Despite the unfavorable situation, Chinese authorities continue to adhere to the "Zero COVID" policy. A representative example is the travel restrictions during the largest holiday in the first half of the year, the Labor Day holiday (April 30 to May 4). Public travel restriction recommendations have been issued in the capital Beijing, and other cities are expected to receive similar recommendations soon.

Within China, the prevailing expectation is that the authorities will maintain their lockdown-centered epidemic control policy until the 20th National Congress of the Communist Party, estimated to be held around October to November. The 20th National Congress is a political event where President Xi Jinping’s third term will be decided. Analysts believe that Chinese authorities will inevitably prioritize politics over the economy. Political, economic, and social controls in China are expected to be further strengthened over the next six to seven months.

This content was produced with the assistance of AI translation services.