China’s Zero Covid Policy: Authoritarian ambitions rock the waves of global financial stability
The Chinese Communist Party’s 20th Party Congress marked a milestone for President Xi Jinping, as he retained his position as general secretary of the party for a third term. His first term and the beginning of his second has been associated with a domestically more autocratic, and internationally more assertive China, while the tail end of his second term was decidedly associated with his Zero Covid policy. The policy displays well the political course that China has taken since Xi’s rise to power but is nonetheless concerning for both states and multinational corporations that are doing business with China. With Xi remaining at the top of the party, it appears likely that the authoritarian path is established as the only way forward. Talks of ‘decoupling’ between China and the US in recent years have largely focused on the US sanctioning of China. With China’s reaffirmed commitment to zero covid and further drift into isolation, is it quite likely that decoupling will accelerate.
While the rest of the world has decided to live with the virus, China instead has enforced mass lockdowns and extensive social surveillance to prevent any virus outbreaks. To keep track of the health status of its citizens, Beijing has mandated the use of a health tracking QR-code that must be shown to enter almost any type of facility. Health codes must be green to allow entrance, even for those who need their medicine at the pharmacy store. In essence, without a green health code, one is alienated from society until the tracker is back to normal. Although the Chinese ‘social credit’ system that was meant to be fully implemented in 2020 has not become the ‘Orwellian’ surveillance dystopia that was feared, the implementation of the COVID-19 tracking system more closely resembles what China-watchers were concerned with.
The economic consequences of the zero covid policy are becoming more apparent the longer they are maintained, both in China and internationally. China’s GDP growth has been lower than expected this year, so far – only 0.4 percent growth in the second quarter. The government target of 5.5 percent growth for 2022 has already been acknowledged as unlikely by the leadership in Beijing, and analysts predict 3.4 percent growth in the third quarter. However, the decision to delay indefinitely the release of any GDP numbers or economic statistics inclines another prediction, that China is joining the US in a technical recession after two consecutive quarters without GDP growth.
Other consequences of the zero covid policy also bear implications for economic growth in the long-term. Youth unemployment reached nearly 20 percent in July, the highest rate recorded since Beijing began publishing figures back in 2018. Many international companies are increasingly becoming more reluctant to invest in the country and are looking to do business elsewhere as a direct result of the higher level of unpredictability in the Chinese market. Although China is known for being the world’s production playground, the risks of supply chains being redirected out of China is increasing the longer zero covid is held in place. The EU Chamber of Commerce reported from a survey in May that 23 percent of their members were looking at redirecting investment out of China. The survey also reported that 77 percent of members saw China as a less attractive future investment destination than previously perceived. Aside from covid, multinational corporations are concerned by the expressed wish of the CCP to establish party cells inside Western companies. The narrower scope of business activities could be another reason why firms are running.
Tech giants such as Google and Apple are redirecting production away from China, mentioning zero covid policies in conjunction with geopolitical tensions as crucial risks to supply chains. Currently, Vietnam has been the greatest beneficiary of Apple’s move away from China, and it is predicted that other countries in South East Asia will receive more of the FDI that was otherwise meant to be directed into China in the coming years as a result of the supply-chain shifts. The reduced attractiveness of the Chinese production market for international companies might also bear consequences for Chinese workers in the mid to long term, as less opportunities will be available to an increasingly desperate Chinese labour force. The zero covid policies also makes it seem unlikely that Chinese companies, especially smaller local ones, will be able to fill the vacuum created by the absence of large international companies, at least for the time being. More lockdowns mean less people out spending money, affecting local businesses which in turn slows down the economy. Consumer spending and in-store traffic is drastically reduced compared to pre-pandemic figures, and the uncertainty of jobs among younger generations mean that projections for growth in the short term remains bleak.
The amount of time and money put into the objective of zero covid cases has in many ways locked the Chinese government on a path that makes it difficult to ease the restrictions, even though the circumstances have changed dramatically. Hospitals, testing facilities and other security measures have all been established in the name of achieving zero covid cases and abandoning it at this point would display a huge waste of resources by the CCP. A similar case can be made for the way the party dealt with abandoning the one-child policy, long after the warnings of its negative demographic consequences were given. For local authorities, imposing full-scale lockdowns without warning to prevent breakouts went unpunished – like the shoppers at Uniqlo in Shanghai experienced in January – while failing to mitigate an outbreak would precipitate major consequences. This illustrates the core issue with China’s zero covid policy; mitigating the threat of the virus by offering effective vaccines is prioritised below the objective of maintaining a low number of cases. While China could have chosen to reduce the threat by purchasing more effective Western vaccines, it has instead left itself more vulnerable by choosing to go it alone. Even more concerning, the strategy exposes the country’s other vulnerabilities, such as its demographic crisis (also a result of the previously mentioned one-child policy) the longer China goes without any course-correction. At this moment, easing the restrictions could lead to a potential mass death scenario, as the elder population is still not sufficiently vaccinated, in a country where healthcare access is unevenly distributed between economic classes. However, Xi’s firm stance on the zero covid policy was reiterated during his 20th Party Congress speech, demonstrating that there is no immediate end in sight for the strategy.
Currently, the political consequences of maintaining the zero covid policy seem to be less negative for Xi than the potential rewards. The CCP has campaigned for a narrative directed towards its citizens in order for the Chinese people to adopt a perspective of the pandemic where it is not China, but the outside world that brought the virus into the country, and that the competence of the Chinese Communist Party has protected the health and safety of the Chinese people. Although the recent appearance of banners criticising the policies and calling for the removal of Xi Jinping suggests that Chinese citizens are growing tired of the lockdowns, actual protests have been rare and unorganised, with the exception of the Shanghai protests during the long lasting lockdowns in February. Additionally, the few critics that are willing to speak up against the zero covid approach are quickly silenced through social-media bans, which also helps to explain why the public in China still more or less subscribe to the narrative presented by the government. Therefore, there is no real pressure against the policies, while the benefits for Xi are clear since social and political control can be prioritised above economic growth.
Ultimately, there is little incentive for Xi to abandon the zero covid policy at this moment. Rather than sufficiently preparing the Chinese public for an ease of restrictions, the zero covid policy leaves them more vulnerable to the virus while further isolating China from the rest of the world. Domestically, President Xi is reaching the height of his authoritarian ambitions, and there is little reason for him not to reap the benefits for as long as possible. Internationally, however, Xi is placing a bet on the world needing China more than China needs the world – and the longer he is willing endure the economic losses, the longer the rest of the world might suffer with it.