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Covid-19: China’s no tolerance policy in spotlight after unrest, economic woes

Stephen Mulrenan, IBA Asia CorrespondentFriday 16 September 2022

In early September, Chinese social media erupted over footage of residents in the earthquake-hit city of Chengdu apparently being prevented from fleeing their compounds during a Covid-related lockdown, enacted after an increase in local cases. In spring, looting and small riots broke out in Shanghai, when residents were unable to access food and medicine in a timely manner during a lengthy lockdown.

China remains something of a global outlier in attempting to completely eradicate any outbreak of Covid. The Chinese Communist Party (CCP) has long argued for the necessity of preventing a wider surge of the virus, which could overwhelm hospitals, and its data supports such an approach.

According to Johns Hopkins University, the country has officially recorded fewer than 15,000 deaths since the pandemic began. While the veracity of that figure might be questionable, it’s statistically far less than any other nation. The CCP has also estimated that its strategy has helped to avoid up to one million deaths and 50 million illnesses, while it allowed the Chinese economy to grow in 2020 when every other major economy contracted.

Covid containment policies anywhere involve a trade-off between economic outcomes and public health outcomes. However, the recent outbreaks of civil unrest suggest that Chinese President Xi Jinping’s assertion – that a ‘zero-Covid’ policy is the most ‘economic and effective’ for China – is being increasingly questioned.

‘The government has spent a fortune on measures to combat Covid, and the policy does have a material impact on the Chinese economy,’ says Feng Zhou, Membership Officer of the IBA Healthcare and Life Sciences Law Committee and a partner at JunHe in Shanghai. ‘But you can also argue that if we cancel the policy, Covid could spread to the whole nation and make a greater impact on the economy.’

He adds that the government’s view is that you can’t just calculate from an economic perspective, you also need to calculate from a political perspective. ‘This means that you need to take the welfare of the whole society into account’, says Feng Zhou.

The challenge is really the balance between the economy and the political agenda that [political leaders] adhere to, in terms of zero-Covid. Those two do not go along very well

Yun Zhou
Scholarship Officer, IBA Corporate and M&A Law Committee

One problem for the CCP, which has staked its political legitimacy on its no-tolerance approach to Covid, is that the economic numbers are heading in the wrong direction. Economists have been steadily downgrading China’s growth forecast for 2022 to well below the government’s target of 5.5 per cent – which was already substantially lower than 2021’s final rate of 8.1 per cent – with the 2022 forecast now at 3.5 per cent, according to a survey of economists in late August. Further strain is predicted for 2023.

In addition, according to a survey from the US–China Business Council published in late August, confidence in China among US companies has fallen to a record low, leading many to delay or cancel investment. Global investment banks are also reportedly rethinking their prospects in the country.

Yun Zhou, Scholarship Officer of the IBA Corporate and M&A Law Committee and a partner at Zhong Lun Law Firm in Shanghai, says China’s political leaders are under tremendous pressure to keep the economy going. ‘The challenge is really the balance between the economy and the political agenda that they adhere to, in terms of zero-Covid. Obviously, those two do not go along very well with each other.’

Another issue is that the highly transmissible BA.5 variant of Covid has highlighted the limitations of a zero-Covid policy. All 31 mainland provinces recorded local Covid cases in late August, reflecting the broadest exposure to the virus since at least February 2021.

This led Ting Lu, Chief China Economist at financial company Nomura, to say that ‘despite a decline in headline Covid cases, the actual Covid situation in China might be worsening, as Omicron has once again spread to large cities’.

Feng Zhou says the spread is very concerning, both to the government and society. ‘We didn’t get tested very often in 2020 and 2021, only when there was a need to travel outside Shanghai. Now a test must be taken every 72 hours if you intend to visit any place in Shanghai.’

He says the new variant is having a huge impact on peoples’ mobility and on the economy at large. ‘And the economic situation in China is not particularly good this year because of the pandemic, tightened regulations on certain sectors, and geopolitical issues’, he explains.

Yun Zhou says a lot of intellectuals in China believe that the country’s population is paying too high a social and economic price to adhere to a zero-Covid policy. ‘But the government is quite used to applying very strict methods when they see a risk. And if they want to do it, they will be able to do it’, he says.

However, he adds that, ‘gradually, even though the overall policy stays the same, the underlying application is becoming more lenient and tolerant’.

Among the hurdles to getting ‘back to normal’ is the fact that many elderly – and therefore vulnerable – citizens continue to resist vaccination.

‘The traditional Chinese understanding of vaccines is that they are a form of virus. So, traditional Chinese medical practice is very much against vaccination’, says Yun Zhou. ‘The elderly are also more susceptible to any negative side effects, and that could be one of the reasons why they resist.’

To combat this reluctance China recently became the first country to approve an inhaled Covid vaccine, which gives added immunity in the lining of the nose and upper airways where the virus typically enters the body.

Following the 20th National Congress of the CCP, which begins in mid-October, Feng Zhou is optimistic that China’s Covid policy might evolve over the next six months. ‘After we have a stable political transition, economic issues will have more priority’, he says. ‘If the economy is so bad that the government feels that it’s just too much sacrifice, then there could be an adjustment to the policy.’

He highlights the government’s work on increasing vaccination rates and developing new vaccines and drugs. ‘If we have more weapons in our arsenal, we have a much better vaccination rate, and we don’t have a worse variant in the future, then maybe the policy will change’, he says.

President Xi previously scoffed at the idea of ‘living with the virus’. Yet, in an encouraging sign that his views may be changing, he recently travelled to Kazakhstan and Uzbekistan, and will attend the Group of 20 summit in Bali in November – his first overseas ventures since the pandemic began.

Image credit: Weiming/AdobeStock.com

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