The mounting cost of China's zero-Covid policy threatens to derail Beijing's ambitious GDP target, analysts say, as supply chains snarl, ports face delays and Shanghai remains mired in lockdown.

Growth in the world's second-largest economy was already slowing in the latter half of last year with a property market slump and regulatory crackdowns, leading policymakers to set their lowest annual GDP target in decades for 2022.

But analysts told AFP the figure of 5.5 percent would be tough to achieve with stay-at-home orders halting production and stunting consumer spending in key cities.

Experts from 12 financial institutions polled by AFP forecast GDP growth of 5.0 percent for the full year.

They expect a figure of 4.3 percent for the first quarter, just above the 4.0 percent recorded in the three months prior.

Official first-quarter data will be published Monday.

"China's economy saw a good start in January and February with less energy constraints, domestic demand recovery... fiscal stimulus, and resilient exports," said Gene Ma, head of China research at the Institute of International Finance.

But surging virus cases in March and lockdowns have "severely disrupted supply chains and industrial activities", he added.

The analysts predicted the coronavirus outbreak would reverse the gains made earlier in the year.

Carmakers this week warned of severe disruption to supply chains and possibly even halting production completely if a lockdown in business hub Shanghai continues.

Premier Li Keqiang said this week that state support should be stepped up and tools including cuts to the reserve requirement ratio for banks could be tapped to help virus-hit sectors.

Other major cities struck by Covid outbreaks include southern tech powerhouse Shenzhen, which went into full lockdown for almost a week in March.

"The hit to retail sales could be even bigger, as dining-out services -- around 10 percent of retail sales -- were temporarily suspended in a few provinces," Goldman Sachs said in a recent report.

But economists expect bigger consequences of the lockdowns to surface in April data and bog down growth.

- 'Lesson' -

With infections found in dozens of cities, Beijing has dug in its heels on the zero-Covid approach, which involves stamping out clusters as they emerge while conducting mass testing and isolating positive cases.

This has resulted in strict movement curbs in Shanghai for around two weeks now as the financial hub logs tens of thousands of cases daily -- most asymptomatic.

The city is home to the world's busiest container port and while operations are running, intercity travel restrictions and a shortage of truck drivers have snarled the passage of goods.

The daily flow of freight vehicles along highways has "weakened sharply" since the start of April, Capital Economics senior China economist Julian Evans-Pritchard said in a recent report.

Shanghai authorities have come under fire for allowing cases to spike and for failing to ensure supplies of fresh food reach all residents.

"Shanghai is a lesson, and local governments from other parts of China may become more sensitive to domestic flare-ups," said Tommy Xie, head of Greater China research at OCBC Bank.

"If they want to lock down, they will try to lock down earlier rather than later," he told AFP.

More short-term disruptions from Covid will likely arise, he added.

Controls in other coastal cities will also remain tight, said Dan Wang, chief economist at Hang Seng Bank China.

"It is not impossible for us to see maybe dozens or even more than 30 cities on lockdown at the same time," she said.

"The economic cost is very high."

China cuts reserve ratio to support firms hit by pandemic
Beijing (AFP) April 15, 2022 - China announced a reserve ratio cut on Friday, intended to free up billions of dollars in liquidity as worries intensify over prolonged Covid restrictions that have disrupted businesses across the country.

The central bank said it would cut the reserve requirement ratio (RRR) by 0.25 percentage points for most banks starting April 25, and 0.5 percentage points for some smaller banks -- lowering the amount of cash banks must hold as China battles its worst coronavirus outbreak since the start of the pandemic.

The move should free up some 530 billion yuan ($83 billion) of long-term liquidity to be injected into the economy, the bank said in a statement.

A virus surge has led to restrictions on dozens of cities in recent weeks as officials stick to a strict zero-Covid policy of stamping out clusters as they emerge, leaving areas like the key business hub of Shanghai locked down for weeks.

Manufacturers have been forced to halt operations, while carmakers warned this week that the situation could threaten auto output and key ports like Shanghai have become clogged.

A key aim of the rate cut is to "guide financial institutions to actively use funds from the RRR cut to support industries and small, medium and micro enterprises severely affected by the pandemic," said the People's Bank of China in a statement.

It added that the move would also reduce the capital costs of financial institutions by about 6.5 billion yuan per year.

Analysts said the move would have a limited impact on the slowing economy.

"The RRR cut should nudge down bank lending rates, which will take a bit of pressure off of indebted borrowers," said Julian Evans-Pritchard, senior China economist at Capital Economics.

"But on its own it will do little to boost lending growth."

The cut was also less than the market expected, said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"I don't think this RRR cut matters that much for the economy at this stage," he said.

This is because the main challenge remains Omicron-driven virus outbreaks and hard lockdown policies -- a Beijing policy that looks unlikely to change.

"More liquidity may help on the margin, but it doesn't address the root of the problem," he said.

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