제 17 호 Easing of China’s Quarantine Policy
Easing of China’s Quarantine Policy
By Jun-Seo Park, Cub-reporter
China abolished the “Zero-COVID” policy, which has been thoroughly maintained for the past three years and eased quarantine with ‘With-Corona’. Why is China rapidly easing its quarantine policy? “Zero-COVID” is a policy that prevents the spread of COVID-19 through intensive regulations, such as implementing lockdown measures. Since the outbreak of the pandemic, China has stuck to its strong Zero-COVID policy by blocking areas where confirmed cases occurred. Developed countries such as Korea, the United States, and EU have almost regained their daily lives, if not collective immunity, since late 2021. In this respect, China’s policy of excessively suppressing individual freedom has proven to have clear limitation. Eventually, people’s livelihoods collapsed, and protests spread. And it made the Chinese government discard Zero-COVID and ease quarantine policy. Therefore, China’s “With-Corona” will have lots of influence on the world economy.
Impact of Zero-COVID
China has stuck to its Zero-COVID policy for the past three years. The zero-corona policy is to make China’s COVID-19 confirmed cases zero, and accordingly, if even one confirmed case occurs, that area was blocked and residents were quarantined. China is called the world’s factory because it is the world’s largest supplier of intermediate goods*. Also, China trades with many countries around the world. As China adhered to Zero-COVID policy, it continued to block major ports and production facilities for a long period. Thus, the global supply chain has worsened significantly. A lockdown had been placed on an important part of China’s economy, and in the aftermath, growth rates of other countries were lowered and inflation has become steep. If the supply chain worsens, companies will not be able to receive necessary components on time. This is because the supply of raw materials is insufficient compared with demand. Thus, PPI** rise, and CPI*** rise accordingly. When prices rise, central banks in each country try to stabilize prices. However, supply-induced inflation does not fall easily just because interest rates are raised. Since what can be controlled by rise of interest rate is not inflation from supply, but inflation from demand. With prices rising sharply, FED**** has been raising interest rates at a very rapid pace. As interest rates rose, asset prices fell because discount rate on asset prices increased. Surely, this phenomenon cannot be attributed to China’s Zero-COVID. This phenomenon is attributed to a number of complex factors, including the Russia-Ukraine war.
* intermediate goods: goods used to produce other goods in production process such as raw material
** PPI: abbreviation of Producer Price Index, cost of an enterprise such as cost of raw materials
***CPI: abbreviation of Consumer Price Index, indicating price fluctuations of consumer goods and services purchased by households to lead consumer life.
****FED: abbreviation of Federal Reserve System, United States central bank system that carries out the country’s monetary and financial policies
Abolition of Zero-COVID Policy, Beginning of With-Corona
The Chinese government, which has maintained a high intensity quarantine policy, has faced limitations. The Chinese people could not freely go to restaurants and convenience stores, and jobs were also difficult to find. As people’s freedom was suppressed and people’s complaints increased, the white paper protest against the Zero-COVID policy began in November 2022. In this situation, the core content of Zero-COVID, which caused many complaints from the Chinese people, was discarded.
China’s White paper protest
The Positive Impact of Abolishing the Zero-COVID Policy
China’s economy may be temporarily hit as the number of COVID-19 confirmed cases in China is likely to increase right now. However, in the long term, if China’s economy recovers vitality through reopening*, it will have a positive impact on the Korean economy. In terms of international trade, if the global supply chain recovers, it will play a positive role in falling prices and logistics costs will fall as cheap Chinese products are traded. Furthermore, workers will move actively, then labor costs will fall. These are also expected to help stabilize global inflation by offsetting inflationary pressure caused by increased consumption.
*reopening: resumption of economic activity
The Negative Impact of Abolishing the Zero-COVID Policy
However, there are not only good aspects. The global energy supply chain has fluctuated due to the Russia-Ukraine war last year. Not only did Russia natural gas supplied to Europe decrease, but crude oil was also sanctioned. Demand for energy exports from countries other than Russia was bound to increase. Amid the faltering energy supply chain, China’s full-fledged economic activities have provided an opportunity to trigger energy inflation. This means that domestic electricity and gas rates are more likely to rise further. China is currently increasing uncertainty in the global energy supply chain. China had implemented intensive quarantine measures and did not engage in more economic activities than necessary. Recently, it is interpreted that China’s energy demand could increase by easing the level of quarantine and informing full-fledged economic activities.
Since it has not been long since the Zero-COVID policy was abolished, it seems difficult to accurately predict whether the positive or negative impact will be greater on the global economy, including Korea. As China abandons its long-held Zero-COVID policy and enters a new phase, it will be interesting to see how the global economy flows.
Sources:
https://post.naver.com/viewer/postView.naver?volumeNo=34806736&memberNo=28192866&vType=VERTICAL
https://terms.naver.com/entry.naver?docId=3434317&cid=58456&categoryId=58456
https://www.munhwa.com/news/view.html?no=2023020901030630000001
http://www.m-i.kr/news/articleView.html?idxno=986337
https://www.yna.co.kr/view/AKR20230109001152530?input=1195m
Image sources:
https://asiasociety.org/korea/jelo-kolona-zero-covid-jeongchaegeulo-wigie-mollin-junggug
https://www.hani.co.kr/arti/international/international_general/1071010.html
