China’s Covid-Zero Strategy Risks Leaving It Isolated for Years

(Bloomberg) -- As most of the world learns to live with Covid-19, China is tethering itself to eliminating the virus over the long term -- an approach that risks leaving the world’s second-biggest economy isolated for years to come.

China this month saw the contagious delta variant pop up in more than half of 31 provinces despite water-tight border controls, triggering yet another round of targeted lockdowns, travel curbs and mass testing across the country. While the outbreak is the most widespread in China since the initial flare-up in Wuhan last year, the World Health Organization said total cases last Friday were 141 -- around .01% of the new infections that day in the U.S.

The aggressive moves to tame a relatively small caseload in a country with one of the world’s highest vaccination rates shows how politically invested the Communist Party has become in achieving zero Covid-19 infections. Chinese authorities are increasingly trumpeting their success in containing the virus as an ideological and moral victory over the U.S. and other nations now treating Covid-19 as endemic.

In the short term, Chinese leaders have an incentive to maintain strict controls at least through next year: They don’t want any major outbreaks derailing the Winter Olympics or clouding a once-in-five-year Party Congress at which President Xi Jinping is expected to get a third term in office. The problem, however, is the rising economic and political costs in maintaining that policy indefinitely, particularly as the virus spawns new variants that can breach restrictions more easily.

“China will have to pivot from its containment strategy, sooner or later -- you can stay Covid Zero for a while, but you can’t stay Covid Zero forever, because the virus swoops in before you know it,” said Chen Zhengming, an epidemiology professor at the University of Oxford. “My worry is that they won’t actively pursue a tactic change as Covid Zero has become an entrenched mentality. Especially when you hold officials accountable, no one dares to go easy on the outbreak.”

Right now it’s nearly taboo in China to even suggest a different approach. In a commentary published over the weekend by a health news app run by the official People’s Daily newspaper, former health minister Gao Qiang called for stronger measures to keep the virus out of China while blasting the U.S., U.K. and other countries for easing too early.

“Their sole reliance on vaccination and pursuit of the so-called ‘co-existence with the virus’ have led to a resurgence of the virus,” he wrote. “This is a misstep in Covid decision-making caused by the deficiencies in their political mechanism and the result of upholding individualism.”

After Gao’s piece was published, Chinese social media users began attacking Zhang Wenhong, director of infectious diseases at Shanghai Huashan Hospital, who had earlier called on Chinese authorities to find “the wisdom to co-exist with the virus long term.”

China isn’t the only country that’s sought to snuff out the virus, with Singapore, Australia and New Zealand also pursuing the strategy dubbed Covid Zero. But as the rest of the world opens up and the prospect of global elimination recedes, others are starting to back away from a playbook that prevented deaths but left them cut off and fixated on case counts.

China’s commitment to Covid Zero has implications for investors, many of whom are already reeling from Xi’s sweeping crackdown on technology firms that at one point erased $1.5 trillion from Chinese stocks. Economic risks are building in the second half of the year, with growth set to slow while inflation pressures pick up. Goldman Sachs Group Inc. and Nomura Holdings Inc. downgraded growth forecasts for China this month over Beijing’s measures to curb the virus.

While China’s Covid policy would lead to a relatively safe domestic environment, “the cost is that China will stay isolated,” Zhang Zhiwei, chief economist at Pinpoint Asset Management, wrote in a note on Sunday.

“The zero tolerance policy is costly for economic growth,” Zhang said. “Mr. Gao’s article shows China is willing to pay the price.”

With 1.4 billion consumers and a tightly controlled political system, China can afford to maintain stringent controls on immigration and internal movement much more than smaller economies like Singapore. The low death toll and massive consumer market allowed China to become the first major economy to recover from the pandemic-induced downturn and boosted the Communist Party’s standing at home just as it plummeted overseas.

‘Overkill’

Many people like Lilah Pang, a 30-year-old advertising executive in Shanghai, have no complaints whatsoever about the restrictions to contain the latest outbreak. “Everyone should discipline themselves, as it’s beneficial to us all,” she said in an interview.

Yet some Chinese people are increasingly questioning Beijing’s absolutist approach, which sees constant disruption to their lives and no prospect of foreign travel for years. One woman who asked not to be identified described some recent virus control measures as “overkill.” “The whole propaganda makes you feel like it’s dangerous to go anywhere right now, even low-risk areas,” she said.

Foreign businesses that rely on the exchange of people are also concerned, particularly as China’s stringent border controls have seen some executives or their families shut out for months. Joerg Wuttke, head of the European Union Chamber of Commerce in China, warned that China could be left “on its island doing its thing” if it persists with a zero-tolerance approach as other countries open.

‘Save the Stock Market’

One practical concern for China’s leaders is the lower efficacy of China-made vaccines compared with mRNA vaccines developed in the West, particularly in a population with little natural immunity. While the government has discussed booster shots, no decisions have been announced.

“The DNA of the leadership is enforcing,” Wuttke said. “As long as they don’t have enough booster shots, I think it’s pretty much going to be more draconian controls.”

China has vilified economic arguments for opening up, with three research groups on Monday releasing a report that described the U.S. objective as “save the stock market, not to save lives.” Authors of the document -- titled “America Ranked First?!: The Truth about America’s fight against Covid-19” -- criticized Bloomberg News’ monthly Covid Resilience Ranking. In July, the U.S was scored as a better place to be than China during the pandemic in part due to progress in opening up, though both are in the top ten among the 53 economies included.

“The freedom of movement and the ‘normal functioning’ of society advocated by Bloomberg’s rankings are not about the safety of the American people,” the report said. “They are only about the need for the free flow of capital, and the desire for excessive profits.”

China’s Covid Zero strategy stems in part from a tradition that people would rebel if leaders don’t protect the people, according to Wei Nanzhi, a researcher at the Chinese Academy of Social Sciences affiliated with China’s State Council. The Communist Party also repeatedly emphasizes a need to protect the masses over powerful interests, she added.

“If in the future every country will open the door, but only China will not open the door, can such kind of thing be sustainable? I think we will learn from other countries’ experience,” Wei said, citing Singapore as an example.

Still, China’s strong public defense of its Covid Zero strategy makes any pivot away from it more difficult. After 18 months of focusing on single cases, it will take a substantial paradigm and propaganda shift for Communist Party leaders to get citizens to accept Covid cases -- and deaths -- as routine.

“There’s definitely a huge political risk for the government,” said Andy Chen, senior analyst with Beijing-based consultancy Trivium China. “Once it decides to change that approach, a lot of people who believe that the government’s genuinely trying to protect them will have second thoughts. They will be very confused.”

©2021 Bloomberg L.P.

With assistance from Bloomberg