IMF head warns of ‘exceptional’ uncertainty as zero-Covid hits China’s economy

The head of the IMF has warned Asia’s leaders and central bankers to brace for “exceptional” uncertainty as China’s zero-Covid policy hurts its economy and inflationary pressures from Russia’s invasion of Ukraine hit the region.

China, the world’s second-biggest economy, is forecast to grow at its slowest pace in about three decades as Beijing tries to navigate an exit from President Xi Jinping’s policy of eliminating all coronavirus cases.

Consumer sentiment among the country’s 1.4bn people has been battered by relentless lockdowns and travel restrictions, exacerbating a severe property sector slowdown and the fallout from rising global inflation.

Speaking to an Association of Southeast Asian Nations summit in Singapore, Kristalina Georgieva, the managing director of the IMF, said the outlook was “exceptionally uncertain” and “dominated by risks”, including global financial tightening.

“We don’t know how long these shocks last, or what other shocks may come, and for this reason we need to rebuild and preserve buffers and be prepared to use the full policy toolkit,” Georgieva said.

While inflation is expected to average a relatively low 4 per cent in Asia this year, Georgieva said inflationary pressures are rising and noted problems stemming from currency depreciation against the dollar.

“Foreign exchange interventions may be used to counter disorderly market conditions and may be justified when frictions emerge in shallow foreign exchange and debt markets,” she added.

In a separate speech to the International Finance Forum in Guangzhou, Georgieva said the way in which Beijing calibrated its “Covid strategy” to mitigate the economic impact would be “critical”.

She suggested more action at the central government level would “safeguard” China’s financial stability following “welcome” support for the property sector. Georgieva also urged fiscal support for vulnerable households and strengthening social safety nets to boost consumption.

However, she warned that “splitting the world into blocs that stop trading with each other will surely knock off trillions” from global gross domestic product — a criticism of the growing divide between China and the west.

Georgieva has joined a rising international chorus of concern about China’s pandemic policy, with US officials predicting Beijing will be unable to control the disease in the long term without western vaccines.

The IMF head’s comments come at a critical moment for Xi and the ruling Communist party after China was rocked by protests over the weekend against government efforts to control record Covid-19 cases and against censorship.

In recent days, however, there have been hopeful signs that Beijing is changing its anti-pandemic approach.

Heavy-handed restrictions have been partially lifted in some cities. Central government health officials have pledged to boost vaccination rates among the elderly, and there are signs that the state’s propagandists are trying to ease concerns about the dangers of the virus.

In China’s southern commercial hub of Guangzhou, restaurants have reopened to eat-in diners and shoppers are flocking back to malls after a brutal weeks-long lockdown. There are reports that schools will reopen soon.

Three Guangdong government officials told the Financial Times that Beijing had allowed the southern province to carry out reopening policies with expanded decision-making power.

“It’s true. It’s happening now in Guangzhou [the provincial capital],” said a senior health official. “We have been filing advice for lifting Covid controls for months, with all kinds of details, and now we finally got the approval from Beijing.”

Public transport and other buildings no longer require proof of a recent negative Covid test to enter. Most of the city’s Covid testing sites have quickly been dismantled, leaving residents who still want to test waiting in long lines at hospitals and paying out of pocket for testing.

Guangzhou also exempted from centralised quarantine some close contacts who met certain requirements. They would be allowed to stay at home if they live alone or have a well-ventilated separate room for isolation, according to a notice on the city’s official WeChat account.

“It’s like former president Trump said — if you don’t test then there is no Covid,” said Liu Song, a merchant in the city.

“Guangzhou has loosened up a lot, but it’s not like the rest of the world yet,” Liu added.

Despite the signs of easing, Ashish Jha, who runs the US coronavirus response, told an FT conference that Beijing would be unable to control the spread of Covid-19 unless it imported foreign-made vaccines that were more effective than Chinese-made jabs.

Earlier, China hit back after US secretary of state Antony Blinken criticised the zero-Covid policy and Treasury secretary Janet Yellen remarked on the negative global economic ramifications of Beijing’s pandemic response.

Zhao Lijian, China’s foreign ministry spokesperson, on Thursday said Blinken’s remarks were “politically motivated” and “create a false narrative”.

“The US has more confirmed cases and Covid deaths than any other country in the world, and is in no position to blame China’s Covid response,” Zhao said.

Yellen’s comments, he added, “have no factual grounds”.

“We also urge relevant people in the US to respect facts, stop making groundless remarks on China or even deliberately distorting facts to smear China, and act in ways that are conducive to international solidarity against the pandemic and the common development of the world.”

Additional reporting by Qianer Liu and Gloria Li in Hong Kong


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