The Chinese economy is losing steam. Industrial production dropped 2.9% year on year in April, the lowest since January-February 2020, when COVID-19 first hit.
China's zero-COVID policy, which has led to drastic measures such as the Shanghai lockdown, is serving as a drag on the global economy. Instead of moving to a post-pandemic era, the world now has to scrutinize Beijing's policy choices and adjust accordingly.
Clouds hang over most economic categories. Automobile production is down by more than 40%. Personal computers and smartphones are similarly sluggish. Retail sales have fallen 11.1% and investment in real estate development has shriveled.
The flow of cargo has stalled at Shanghai Port, the world's busiest container port before the pandemic. Japanese carmakers have struggled to receive parts from China.
With partner factories closed in China, even Apple has taken a huge hit.
There is some good news. Shanghai is expected to end its lockdown next month, now that the spread of COVID-19 is seen as manageable.
But restrictions remain in other cities, including Beijing, and Chinese production and consumption are unlikely to return to normal anytime soon. The government will have a hard time reaching its stated goal of around 5.5% economic growth for this year, impacting economies across Asia and beyond.
Meanwhile, the Chinese government has shown no signs that it will change the zero-COVID policy. The leadership under President Xi Jinping reiterated its commitment to the policy at a meeting this month. With the quinquennial Chinese Communist Party National Congress awaiting in the autumn, the president does not have the luxury of failure. Entering a sensitive political season, the Chinese economy could very well be sacrificed amid the power struggles.
Under zero-COVID measures, the Asian Games -- set for September in Hangzhou -- have been postponed. China has also given up hosting the soccer Asian Cup scheduled for June to July 2023 and is looking for an alternative site.
China's massive market has always been attractive to companies around the world. But under the Communists' single-party rule, drastic measures taken at the whim of the leader -- like zero-COVID or sudden policy changes -- are unavoidable risks.
Multinational corporations need to realign or diversify their supply chains to avoid a major disruption to their production.
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