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Shanghai lockdown could shave off about 2% of China’s total GDP

Shanghai Covid lockdown--economy to be hit

The ongoing stringent lockdown in the Chinese financial hub of Shanghai following the resurgence of Covid 19 infections will severely affect the country’s overall gross domestic product (GDP). Analysts said that it could shave off 1.5 per cent to 2 per cent from China GDP even as Beijing assured that timely and necessary measures would be taken to support the economy.

The share of Shanghai's economy in China's total GDP amounts to more than 3.5 per cent. According to Statista, in 2021, GDP of Shanghai municipality stood at about 4.32 trillion yuan.

China had set a GDP growth target of 5.5 per cent for 2022 after registering an expansion of 8.1 per cent in 2021.

The country’s central bank– People’s Bank of China (PBOC) is already looking at a host of monetary policy measures including reduction in key policy rates.

Also read: Hunger begins to stalk Shanghai amid stringent Covid restrictions

“The authorities in China are aware of the problem, there are concerns over slowing economic growth. Major steps will be taken to support the economy and we can expect more money to pour into the system,” Aravind Yelery, senior research fellow at the Peking University and visiting faculty at Fudan University in Shanghai told India Narrative.

Liquidity infusion into the system will be critical. The reserve requirement ratio or the minimum quantum of reserves that banks are required to hold is set to be brought down, so that they can have more money to lend. Besides, the government can come out with tax relief measures too – particularly to provide cushion to the small and medium enterprises. Many of the SMEs– the “mainstay of the market and the main source of jobs” — as China’s Vice-Premier Liu He described, face closure amid the uncertainty.

“We estimate that Shanghai will suffer a 6 per cent GDP loss if the current lockdowns persist in this month alone; that’s a 2 per cent GDP loss for the whole of China,” Hellenic Shipping News said.

Home to about 25 million people, Shanghai—now the Covid 19 hotspot, has been under lockdown. The lockdown which was to end on April 5 has now been extended leading to uncertainty and panic among the citizens.

The stringent lockdown and China zero Covid approach have caused concern among the business community.