As Economy Suffers, Xi Faces Pressure to Lift Virus Restrictions

Deepening economic damage from China’s coronavirus outbreak is forcing its leadership to confront an agonizing decision: when to ease quarantine restrictions that are strangling growth, even as they help contain the virus’s spread.

Businesses executives and some local leaders are becoming more vocal about the need to streamline rules to reopen factories and get workers and supplies moving again in many parts of the country where activity remains at a standstill.

But many local officials fear doing so could risk a resurgence of infections, prolonging the outbreak and putting their jobs on the line. Many privately complain that President Xi Jinping has put them in an impossible position, demanding they keep growth on track while also ensuring the virus doesn’t spread.

Tensions have sharpened in recent days amid signs that infections may be peaking in Wuhan, the outbreak’s epicenter, where confirmed infections have reached more than 47,000 cases, or about 60% of the national total. While that has brought hope the epidemic may be coming under control in China, it has heaped pressure on officials to declare victory and loosen quarantines before the economic pain worsens.

Wuhan briefly announced on Monday it would begin to ease its quarantines that day, only to retract the notice a few hours later. Wuhan’s government said in a statement that its earlier notice was issued without the approval of the city’s “key leaders.”

Other cities, including Beijing, tightened restrictions on movement in recent weeks after having taken tentative steps to loosen their rules only to see new infections appear.

Mr. Xi has sent mixed messages, calling on leaders to stop at nothing to contain the virus while also urging them to ensure growth remains robust. The leader needs both tasks to succeed to quell public anger toward the government’s handling of the outbreak and reinforce his popular appeal.

In an address to the 25-member ruling Politburo this month, Mr. Xi instructed party members to wage a “people’s war” against the outbreak. Then, he said China must adhere to development targets, which call for doubling the size of China’s economy in the decade through 2020 — a goal officials say requires annual growth of at least 5.5% this year.

Three days later, Mr. Xi told French President Emmanuel Macron in a call that the epidemic’s impact on China’s economy would be “temporary,” adding “China will still be able to achieve” its growth targets, according to the official Xinhua News Agency.

On Tuesday, Mr. Xi called on authorities to help farmers cross road barricades to return to rice paddies for “an all-out effort to secure a bumper summer grain harvest.” Analysts say if the spring farming season is missed, China’s food security would be at risk.

Despite Mr. Xi’s displays of confidence, the economy is fast weakening. Factories remain idle, and consumption and investment have plunged. While China has delayed the release of official economic data until mid-March, other indicators point to a significant downturn.

Average coal consumption at major power companies was about 40% lower from a year earlier in the week through Feb. 25, Goldman Sachs said. Home sales were one-quarter of the seasonal norm, it said, and demand for steel was around 50% its normal rate in the past three years.

Using migration data from map-and-search company Baidu Inc., Nomura estimates that a little more than a third of the people who left cities such as Beijing, Shanghai and Shenzhen for the Chinese Lunar New Year in late January and early February have returned. By this time last year, nearly all had. Migrant laborers make up about 40% of China’s workforce and are needed for manufacturers to resume production.

In some places, authorities have shut public transportation and locked down residents. Even some cities far from the epicenter have been allowing residents outside only every few days. Currently, hundreds of millions of people in China are on lockdowns of varying degrees.

Some sectors are calling for urgent help.

“We almost closed all our property sales offices overnight, and all sales have stopped,” reads a recent letter to the government in Jiangxi province, in southeastern China, from the Jiangxi Property Association. Its members, many of them private developers, “face huge financing pressure and are finding it hard to resume business,” the group said.

China Baowu Steel Group, the country’s largest steel producer, has warned that first-quarter profit would drop as much as 3 billion yuan, or roughly $428 million, because of disruptions from the epidemic. That would mark a 14% decline from its profits in the same period of last year.

“Market demand has dropped,” said Zhang Jinggang, vice general manager of the group, at a forum on Feb. 22. “Inventories are piling up faster than expected.”

Foreign companies such as Apple Inc., Deere & Co. and auto-parts maker American Axle & Manufacturing have also warned about softening sales in China. A mid-February survey conducted by the American Chamber of Commerce in South China shows that over 76% of its 399 respondents believe their 2020 revenues would be hurt by the viral outbreak.

Some analysts are predicting zero or even negative Chinese growth in the first quarter, a direr forecast than a month ago, when the outbreak started to spread quickly. The slowdown is calling into question the leadership’s insistence that China can meet its economic targets this year.

“Propaganda can’t move mountains,” wrote Zhang Anyuan, an economist at CFC Financial, a Chinese securities firm, in a Feb. 24 report. Mr. Zhang is among the experts who think first-quarter growth could come in at zero or worse.

“Based on the seriousness of the economic losses in the first quarter, adjusting and downplaying growth targets would be understandable and acceptable to the people,” he said.

An official in the Jiangxi provincial government said local state banks are trying to help some companies through the cash crunch.

“But we have to be extremely cautious about relaxing travel and other restrictions,” the official said. “There is still a lot of uncertainty over the virus and we don’t want to see all our efforts go to waste.”

Other officials are trying to pass along the pressures to local businesses. In the coastal city of Lianyungang, in eastern China, the local finance bureau is demanding that companies in a 50-square-mile industrial zone put up 100,000 yuan deposits, about $14,000, in order to restart production.

Companies that keep infections at bay will be rewarded with 50,000 yuan each, according to a notice from the finance bureau. But if any employees fail to wear masks to ensure safety, their employers would be fined as much as 10,000 yuan.

Elsewhere, steps to remove barricades or otherwise encourage production to resume aren’t having as much impact as hoped, because companies are still encountering problems caused by restrictions in other areas.

Wang Yifeng, the owner of a polyester-fabrics maker in Zhejiang province, said most of his workers are from out of town and haven’t been able to return to work due to travel limits in their hometowns.

“All the managers are here, but all our machines haven’t been turned on, ” Mr. Wang says. His company, which generates about 200 million yuan in annual output, employs some 100 workers from across China.

In Wuhan, speculation about when to lift the local quarantine started almost as soon as it was put in place, under Mr. Xi’s personal orders, in late January. The city’s abrupt flip-flop on quarantine rules on Monday came a day after Mr. Xi held a rare teleconference with some 170,000 cadres throughout the country, calling on them “to advance the work on coordinating the prevention and control of the Covid-19” virus, along with economic and social development.

Mr. Xi has said authorities should decide how and whether to ease quarantines based on local health risks, though some say the uncertainty over the virus makes it hard to gauge the risks.

“How do you claim victory if the coronavirus actually turns out to be a long-term public health struggle rather than something more capable of total eradication,” said Carl Minzer, a professor of Chinese law and politics at Fordham University.

Some state-controlled newspapers blamed Wuhan’s confusion on a deputy mayor who failed to seek higher-level approval. For some Wuhan officials, it was evidence of the stress on local governments as they struggle with the top leadership’s twin objectives.

“How would the epidemic evolve going forward? Can factories return to production in time? How to balance epidemic control against economic development?” said Wu Ge, a former central-bank official who is now chief economist at Changjiang Securities. “Those have all become the key contradictions” faced by China’s policy makers.”
Source: Dow Jones