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China’s zero-Covid strategy: A glimmer at the far end of the tunnel

Recent sporadic outbreaks of new Covid-19 cases in more than a dozen Chinese provinces have raised another round of discussions in the country about how much longer Beijing can keep up its strict zero-Covid strategy and at what cost, particularly in light of the high transmissibility of the Omicron variant. As other countries with a zero-Covid approach such as Australia, New Zealand and Singapore begin to pivot from elimination to mitigation strategies, including strengthening their healthcare systems, driving up vaccination rates and keeping in place non-medical interventions such as social distancing, an indoor mask obligation and improved ventilation, China will be the only one still pursuing a zero-tolerance approach.

Beijing’s zero-Covid approach tops global risks for 2022 – no sign of loosening

As now the only holdout and at the same time one of the key links in global supply chains, China’s zero-tolerance policy has topped the Eurasia Group’s list of global risks for 2022. According to Ian Bremmer, its president, “it is a significant problem and could lead to major dislocations globally, with greater supply-chain issues and greater inflation - and knock-on risks. It is the single top risk in the world today.”

But despite the ever-rising costs, including a regularly disrupted factory output, supply and logistics shocks, overwhelmed medical personnel and a presumably increasing popular discontent, as recently evidenced by reactions to the reported fate of some individuals who fell victim to the strict lockdown in China’s western Xi’an city of 13 million residents, Chinese authorities will not change course or tweak their strategy any time soon for mainly four reasons.

First, the zero-Covid strategy has been billed a source of legitimacy bestowed upon the ruling Communist Party. Beijing’s strict controls have resulted in extremely few deaths and infections compared to other countries such as the United States and the United Kingdom. No doubt, Chinese official channels have revved up their propaganda machines to advocate the superiority of the Chinese system in responding to the public health challenge. But as of now, it seems hard to imagine that the leadership will make any policy adjustments that risk jeopardizing the widely recognized life-saving achievement.

Second, from the standpoint of China’s medical preparations and vaccinations, China’s healthcare system still runs the risk of being overwhelmed by surging caseloads. China has only roughly six million hospital beds for 1.4 billion people. ICU beds only account for 3% of these available hospital beds, far below the 15% in the United States for instance. In other words, per every 100’000 Chinese citizens, there are a mere 3.6 ICU beds, a tally even below the number for developing countries like Iran and Malaysia. In 12 European countries, the ICU bed ratio per 100’000 citizens is 11.5 beds, in Germany even 29.2. On top of that, China’s domestic inactivated vaccines in dealing with variants like Delta and Omicron seem to be less effective than other vaccines. So even if vaccines might provide some protection against severe cases, the virus could still contribute substantially to increased hospitalizations. The most likely scenario is that before China’s homegrown mRNA vaccines are available, China will keep up its reliance on domestically produced inactivated vaccines for various reasons including vaccine nationalism and availability of foreign-made mRNA vaccines for a population of 1.4 billion people.

Third, China’s zero-Covid policy has been a victim of its own making. As the pandemic first hit Wuhan in early 2020, Chinese authorities began a campaign of demonizing the virus as a precaution of potential nationwide outbreaks, given China’s overstretched hospital and healthcare infrastructure. As a result, Chinese society has gotten used to low levels of transmission, even if the latest Omicron variant appears to be less deadly and symptoms are milder. The rigid strategy therefore still wins popular support and it will take a significant amount of “pandemic fatigue” for it to be seriously revisited.

Last but not least, as a nation of 1.4 billion people and wide geographic expanse, China can afford a “trading space-for time” strategy, i.e. closing its borders for cross-border travel and choosing to confine mobility to the country’s own territory while having a domestic economy running more or less normally that also exports into all corners of the world, waiting for more effective vaccines and treatments to neutralize the virus.

Reality Prevails

Despite all these factors pointing towards a continuation of Beijing’s Covid-19 strategy in the months ahead, China’s strict border closures and an at-any-cost elimination approach may see some loosening signs in the second half of this year, particularly after the 20th Party Congress this fall.

But also generally, the Omicron variant might be planting the seeds of change in the equation, given its high transmissibility and low fatality. Chinese authorities have recently summoned top health experts from across the country to Beijing to map out the next step in coping with the inevitable domination of Omicron. Although an immediate relaxation is out of the question, there are signs that Beijing is giving serious thought to the present zero-tolerance approach. According to the latest cover story of Caixin, a leading Chinese economic and finance media group, experts have called for a more fine-tuned approach to balance between virus control and normal social and economic operations.

This would also be in the interest of foreign companies with exposure to the Chinese market or suppliers. Somewhat surprising, though, according to EU Chamber’s Business Confidence Survey 2021, European companies’ commitment to the Chinese market remains strong – a mere 9% of respondents are considering shifting any current or planned investment out of China, the lowest share on record, and over a quarter of manufacturers are onshoring at least some of their supply chains, five times as many as are offshoring. This highlights the persistent attractiveness of the Chinese manufacturing ecosystem as well as the growing domestic market.

That said, the EU Chamber also wrote in its annual China position paper that the strategy dubbed as “dual circulation” represents a shift away from its decade long course of relying heavily on foreign investment, talent and exports. As a result, there is no doubt that Beijing’s strict border closures and resolute domestic measures to extinguish any Covid flare-up add fuel to foreign companies’ anxiety and concern about China deviating from the opening up spirit practiced since the early 1980s. Many these days even argue that the imposed lockdowns and travel restrictions could accelerate a decoupling of sorts as they add to the list of reasons for companies trying to reduce their supply chain reliance on China.

In line with this trend, China’s economy has shown signs of lackluster growth and the momentum is slipping. The pace of GDP growth eased from 7.9% in the second quarter of last year to 4.9% in the third quarter and further down to 4.0% in the last quarter of last year, with weak global demand putting increasing pressure on a China reliant on exports for employment.

Therefore, if Beijing’s zero-Covid policy continues for another year and the export sector is no longer able to pick up the slack of hampered domestic consumption amid this uncertainty, Beijing will have to revisit its policy sooner than later. After all, policymakers slightly changed their tone in last year’s Central Economic Work Conference, emphasizing increased policy support to stabilize growth.

Overall speaking, Beijing most likely will adopt a staged rather than an across-the-board exit approach of China’s zero-Covid strategy, aligned with the Covid development outside China’s borders. This includes the rollout of more effective vaccines and medicines. If, thanks to scientific interventions and herd immunity, the severity of a Covid-19 infection could be reduced to a level of seasonal flu, China would ultimately open itself up to quarantine-free international travel and start living with the virus.

In the meantime, it remains an open question whether China like other countries starts experimenting with quarantine-free travel arrangements with selected jurisdictions featuring high vaccination rates and strict granting of individual vaccine passports or health codes.


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