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China’s Covid Zero Could Last for Years Because It Works for Xi

·10 min read
China’s Covid Zero Could Last for Years Because It Works for Xi

(Bloomberg) -- It’s 2025 in Beijing, five years since the start of the pandemic, and Chinese President Xi Jinping’s Covid Zero policy is still an inescapable part of daily life.

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Residents must get PCR tested every few days at one of the booths on nearly every street corner. A personalized health code app determines who can move around the capital, and where. Children have to test negative to go to the park. Something as simple as a visit to a coffee shop or supermarket can result in being locked down in your apartment, not even allowed out for food – which the state instead provides.

Because a few positive cases prompt officials to restrict movement in all or parts of the city, CEOs assume they must deal with several shutdowns a year. Companies, universities and cultural institutions that once thrived on contact with the rest of the world are isolated, with flights into China limited and travelers still facing compulsory quarantines. Multinationals struggle to convince foreign staff to relocate and put up with the nuisances of Covid Zero that locals largely accept as their unaltering reality.

Such a scenario – where China’s absolutist approach to the virus remains in place years from now – until recently would have seemed far-fetched.

Other Covid Zero havens like Singapore and Australia have given up trying to stamp out the pathogen, with global investors, economists and a host of others expecting China to inevitably follow suit. Every move viewed as an easing of the policy has generated rallies in travel stocks and optimism that China would soon join the world in dropping most pandemic-related restrictions.

But while the strategy has been tweaked around the edges, optimized to staunch some of the fallout for the world’s second-largest economy, the core premise has held fast. As omicron sub-variants become ever-more infectious, Xi’s resolve to avert virus fatalities is growing stronger – leading many experts to warn that Covid Zero could continue well beyond 2022.

“All of us may have underestimated how strong the Chinese state’s will is in continuing with its so-called dynamic-zero Covid policy,” said Tianlei Huang, a research fellow at the Peterson Institute for International Economics, a Washington-based research group. “Everything must serve the utmost goal of achieving zero Covid.”

For Xi, unlike most global leaders, the political risks of opening up are still far greater than the benefits.

Missteps in early 2020 to minimize — and in some cases obscure — the initial outbreak in Wuhan undermined the social contract that underpins the Chinese Communist Party’s legitimacy: An acceptance of one-party rule in return for competent governance that keeps the public safe and improves overall quality of life.

To win back trust, Xi used powers largely unavailable to democratic leaders to keep the virus out and limit fatalities. And it’s worked: While questions persist about the reliability of Chinese data, the country has reported just 5,226 Covid deaths since the pandemic began, compared with more than 1 million in the US.

China’s success gave Xi’s government ammunition to fire back at international criticism over the virus’s origins. As Donald Trump repeatedly blasted China during the 2020 US presidential campaign, Beijing decried the soaring death counts in America and Europe, using them to showcase the superiority of Communist Party-led rule.

It’s also made the policy popular among many Chinese, who have been willing to put up with unpredictable lockdowns and the ubiquitous testing now required in major cities as the price of being protected. The fact outbreaks – and the Covid Zero disruption that follows them – haven’t touched everyone in the vast country has also emboldened Xi.Covid Zero Oasis Chongqing Shows Why Xi Keeps Locking Down

The conundrum now for Xi, however, is that China has staked so much on avoiding virus fatalities, it can’t exit the pandemic as other countries have — by accepting greater death as a reality of living permanently with Covid.

Many elderly people in China remain vaccine holdouts: In early July, about 30% of Shanghai’s seniors still hadn’t received even one dose. And Hong Kong’s experience earlier this year showed what could go wrong, as omicron tore through nursing homes, giving the under-prepared city the world’s highest death rate in March.

China’s Low Elderly Vaccination Rate Shows Key Vulnerability

Given the size of China’s population, the stakes are even higher.More than a million people might die if China - which has little natural immunity - were to abandon Covid Zero, according to an analysis by researchers at Shanghai’s Fudan University. The absenteeism and economic chaos seen in Western countries after they reopened would also pale in comparison to what China might experience.

“From the Chinese leadership’s perspective, Hong Kong’s exceptionally high death rate in the spring provides stark proof of that possible scenario,” J. Stephen Morrison, Yanzhong Huang and Scott Kennedy wrote in a commentary published June 27 for the Center for Strategic and International Studies, a Washington-based research group.

The trade-off for Xi in going all-out to quash Covid is slower economic growth, which has traditionally been the prime concern of Party officials.

Economists surveyed by Bloomberg News predict China’s gross domestic product will grow at 4% this year, down from 8.1% in 2021 and below the official target of about 5.5%. The consumer and services sectors have been battered by two years of restrictions and shutdowns, with curbs crippling domestic tourism and slashing incomes. Premier Li Keqiang has repeatedly warned of a “grave” jobs situation, often a recipe for civil unrest in democracies and single-party regimes alike.

China’s Overeducated and Underemployed Young People

Foreign business groups say companies are looking to divert investment away from China and move headcount to other parts of Asia to avoid disruption like that seen during Shanghai’s two-month lockdown earlier this year.

For Lance, a biotech executive in Beijing, the specter of Covid Zero has altered the way he socializes and consumes. The capital was under threat of lockdown for much of May and June, with work-from-home orders in place and restaurants shuttered amid an outbreak of some 2,000 cases.

Lance, who asked to be identified only by his first name due to the risks of criticizing Xi’s signature policy, now makes most of his purchases online rather than risk going to the store.

“The work I do means I need to socialize a lot, but I barely go anywhere these days,” he said.

Affluent and well-educated Chinese like Lance will be looking to exit if Covid Zero continues longer term, according to Amy Gadsden, associate vice provost for global initiatives at the University of Pennsylvania and a former special adviser on China to the US State Department.

Living cut off from the world is “not the future they signed up for,” she said. “It’s going to be hard to retain talent and it’s going to be hard to lure talent.”

Rich Chinese Worth $48 Billion Are Struggling to Flee Covid Zero

Yet so far Xi is unmoved. In fact, he’s doubling down.

In a recent address from Wuhan heavy with symbolism, Xi repudiated the West’s embrace of “herd immunity,” saying the consequences of “lying flat” against the virus would be unimaginable for China.

“Even if there are some temporary impacts on the economy, we will not put people's lives and health in harm's way,” he said in June in the city where Covid first emerged. “The epidemic response measures,” he added, “are correct and effective, and must be upheld unwaveringly.”

Coming after China reduced the number of days travelers need to spend in quarantine, the comments jolted financial markets. Reinforced a month later by the Politburo, the Communist Party’s top leadership, the unequivocal commitment to Covid Zero has led to a reassessment for some who expected the country to reopen once Xi secured a third term at the once-in-five-year Party congress due to be held later in 2022.

Covid Zero will remain in place for at least another year because it’s now inextricably tied to Xi, said Joerg Wuttke, president of the European Union Chamber of Commerce in China, during a July 20 webinar sponsored by the Peterson Institute.

“My guess is China can at the earliest open up late 2023,” he said. Officials “are in a deep hole and they keep digging.”

Still, Beijing does have tools at its disposal to ease some of the economic pain from prolonging Covid Zero indefinitely, including spending more on infrastructure and supporting the property market, said Wei Lit Yew, lecturer in the Department of Government and International Studies at Hong Kong Baptist University.

The government has also found ways around some of the policy’s most disruptive measures. Factories were able to resume operations during Shanghai’s intensive two-month lockdown by using closed loops — systems where workers are consistently tested and only allowed to go from their company-run dormitory to the plant and back. That enables exports to be maintained.

“China is counting on the fact that the world needs China more than China needs the world,” Yew said.

And while some companies may be threatening to leave, plenty of others are increasing their bets.

Foreign direct investment into China during the first six months of 2022 rose to 723 billion yuan ($112 billion), on track for another record year. Tesla Inc., which saw its Shanghai factory shuttered for three weeks during the lockdown, reopened using a closed loop and is now expanding the plant. Planemaker Airbus SE is also investing in more China capacity.

Chinese health advisers have outlined potential exit strategies, saying over the months that opening up hinges on improved vaccination rates, increased access to antivirals and greater capacity at hospitals.

Yet progress in these areas has been slow, with mixed messages from government officials.

Some experts have flagged boosting ICU capacity as key to China being able to normalize, but there’s been nothing said publicly about bolstering acute care.

Exiting Covid Zero Risks Inundating China’s Unprepared Hospitals

While China has approved Pfizer Inc.’s Covid anti-viral pill, it hasn’t permitted foreign-made mRNA vaccines shown to have higher efficacy rates than its home-grown, inactivated shots. The Politburo’s recent reinforcement of Covid Zero suggests China will continue to prioritize it over economic growth, Australia & New Zealand Banking Group Ltd. senior China economist Betty Wang and senior China strategist Zhaopeng Xing wrote in a report published July 29.

“It appears to us that any change in the zero-Covid policy will only happen when authorities are convinced that mutations are less virulent and vaccines and medicines are proven to be more effective,” they wrote. “Both are unlikely to happen in the near term.”

The biggest challenge for Xi could still come from how long China’s 1.4 billion people are willing to be shut off from the world.

In June, a report that mistakenly indicated Beijing would keep strict virus controls in place for the next five years spurred backlash online in China, prompting authorities to swiftly edit the article. Shanghai’s lockdown was met with protests and heavy criticism online.

Another wild card is the virus itself. While China has been largely successful in reducing cases, even after omicron hit, the lackluster elderly vaccination rate still makes it vulnerable to an even more contagious variant that is also more virulent.

That’s a major risk in a political system in which displaying an “aura of competence is absolutely essential” to maintain the faith of the Chinese public, said Rajan Menon, director of the Grand Strategy program at Defense Priorities, a think tank in Washington.

The bet they’re taking is that somehow Covid Zero will defeat the virus, things will open up some day and economic losses can be recouped, Menon said.

“What if that bet is wrong? What is then their Plan B?’’ Menon said. “That is not clear to me or them. They have bet the house on Covid Zero.”

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