Xi Jinping, China’s strongman leader, is doubling down on his “zero-Covid” strategy in spite of its mounting economic cost. The politburo Standing Committee, the pinnacle of Communist party power, asserted last week that “persistence is victory” and proclaimed that authorities would “certainly be able to win the battle to defend Shanghai”.
Unlike in previous Covid-related meetings, there was no mention of an intent to balance zero-Covid policies with the needs of economic growth. On the contrary, Beijing warned that it would not tolerate any wavering. “We will resolutely struggle against all words and deeds that distort, doubt and deny our epidemic prevention policies,” a politburo statement said.
If China holds this line, the economic fallout looks set to be profound. Nomura estimated this week that 41 cities were implementing full or partial lockdowns or other forms of mobility control, affecting around 290mn people in regions that account for 29.5 per cent of gross domestic product.
Some Chinese economists are raising the alarm. Xu Jianguo, associate professor of economics at the National School of Development in Peking University, was reported as saying it would be challenging for China to reach its economic growth target of “around 5.5 per cent” for this year or even match the 2.3 per cent growth figure in 2020.
Indeed, several indicators are flashing red. Export growth plunged to 3.9 per cent year-on-year in April, down from 14.7 per cent in March, representing a blow to China’s single biggest growth driver since early 2020. Sales of property, another big contributor to GDP growth over the past two decades, have slumped precipitously this year, triggering a series of defaults on debt repayments by developers.
Heaping further pressure on Beijing this week, the head of the World Health Organization (WHO) warned that China’s zero-Covid strategy was unsustainable. Tedros Adhanom Ghebreyesus said that the WHO had discussed the issue with Chinese experts, adding that “considering the behaviour of the virus I think a shift [in China’s strategy] will be very important.”
In truth, China faces a highly complex set of challenges with no easy answers. As the politburo meeting last week noted, China has a large elderly population and insufficient medical resources. Researchers at Shanghai’s Fudan University estimated that an unchecked surge of the Omicron coronavirus variant could result in 112mn symptomatic infections and almost 1.6mn fatalities between May and July.
For Xi, the political stakes are high. If China fails to control the spread of the highly infectious Omicron, his prestige may suffer ahead of a party congress later this year at which he is expected to secure another term in office. If he manages to control the virus’s spread by continuing the current lockdowns, he will be incurring a hefty economic toll.
China’s best option would be to adopt three concurrent approaches. The first would ease lockdowns by allowing greater freedom of movement in cities that have high vaccination rates. It should also sharply accelerate its vaccination programme — especially among elderly and unvaccinated populations — and permit the mass import of foreign mRNA jabs. The third would be to stimulate the economy by making monetary policy more accommodative and launching some targeted interventions such as a modest infrastructure investment package.
Xi should recognise that the rigidity he and his officials have displayed in handling Omicron outbreaks is hurting his people and his economy. He needs to adopt a more flexible approach if he hopes to restore some credibility.
