Economics of Trade-Offs: China economy shrinks on zero-Covid policy

While many Western economies appear to be slowly recovering from the coronavirus pandemic, China is struggling to do so.

It is clear that its economy is more vulnerable to further outbreaks of the virus - in part because its vaccines aren't as effective as Western versions.

As a result, it has adopted a zero-Covid policy and there have been many more localised lockdowns that elsewhere, meaning that GDP is now 2.6% lower than it was at the end of the previous quarter. It's a very contemporary example of why Economics is all about trade-offs.

Strict lock-down policies in China have been critical to some of the supply-chain problems and shortages affecting many other regions of the world economy.

It is worth remembering that China accounts for 19 percent of the world’s GDP based on purchasing power parity (PPP). That’s up from just 8 percent two decade ago, when both the United States and the European Union were significantly ahead of China’s economic output.