Why China Is Sticking With Its ‘Covid Zero’ Strategy

(Bloomberg) -- Two years ago, China was being lauded by the World Health Organization for its success in beating the coronavirus. But its insistence on adhering to a so-called Covid Zero policy is leaving it increasingly isolated as other countries, most of which suffered far worse outbreaks and higher death tolls, wean themselves off harsh countermeasures and return to a semblance of pre-pandemic life. Their populations have built up a large degree of protection through previous infections and more effective vaccines. Chinese officials have said vaccines alone aren’t enough and stringent curbs aimed at wiping out the virus are needed to avoid a health care calamity. President Xi Jinping has pledged to try to reduce the economic impact of the strategy, which Hong Kong also follows. But continued flareups, including an extended one in the financial capital Shanghai, are putting it to the test as never before. 

1. Does Covid Zero mean zero cases? 

Yes, ideally. Beijing’s perception of Covid hasn’t changed much since the virus first emerged in the central Chinese city of Wuhan: It’s a public health threat that must be eliminated at all costs, whether it’s spreading via people or animals or lurking on frozen food or mail from abroad. To achieve this, China requires at least two weeks in quarantine for anyone arriving from other countries. Domestically, even the slightest flareup is met with a barrage of targeted testing, contact tracing and quarantines to try to nip it in the bud, with citywide lockdowns as a last resort. The approach, which has become known as “dynamic clearing,” acknowledges that infections occur but aims to stop the transmission of the virus. The highly infectious delta and omicron variants have made it more difficult for China, which hasn’t gone a day with zero new local cases reported since October. In early April the daily tally topped 20,000 -- surpassing the opening days of the pandemic in China, before testing was easily available -- before falling back later in the month.

2. Why is China sticking to it?

In its calculus, the benefits outweigh the costs. The government estimates the strategy has avoided 1 million deaths and 50 million illnesses. It has acknowledged fewer than 5,000 deaths from Covid on the mainland, mostly early in the pandemic. That compares to almost 1 million in the U.S., which has a population less than a quarter the size of China’s. Beijing has used those figures to portray its system of governance as superior. Covid Zero also allowed the Chinese economy, the world’s second biggest, to grow while other major economies contracted in 2020. Growth continued last year and 2022 got off to a stronger-than-expected start, although the outlook has been clouded not only by Covid but the global repercussions from Russia’s invasion of Ukraine. That’s prompted China to experiment with a closed-loop system to allow some factories to keep operating during outbreaks. Workers are effectively put in a bubble, ferried between their company-run dormitories and the plant -- or sleeping on the floor at work -- with regular testing and temperature checks. China will “strive to achieve the maximum prevention and control effect at the least cost and minimize the impact of the epidemic on economic and social development,” Xi said in March.

3. What’s the domestic impact been? 

As the virus has become more contagious, it’s led to more frequent outbreaks, some of which have resulted in hardcore lockdowns, where most people are required to stay home. A handful have dragged on for several weeks this year, such as in Shanghai and the northeastern industrial province of Jilin, leading to economic and social hardship and distress for people with chronic medical conditions. In the western city of Xi’an, one woman suffered a miscarriage and a heart attack victim died after difficulty accessing emergency care. On the other hand, the giant tech hub Shenzhen emerged from just a week of lockdown relatively unscathed, with some factories continuing to operate under the bubble system. By late April, authorities in Beijing and other cities including Hangzhou, home to tech giant Alibaba Group Holding Ltd., were seeking to replicate that experience by initiating testing blitzes immediately after the first cases turn up. Still, all the disruption and fear of infection means people have avoided travel, shopping and dining out, dampening retail spending. Even partial lockdowns have snarled industrial supply chains. The gloom has added to weak investment and a broader downturn in the property market. Economists have been steadily downgrading their growth forecasts, with Morgan Stanley cutting its projection for this year by 40 basis points to 4.2%, well below the government’s target of around 5.5%.

4. What are the hurdles to getting back to normal?

There are several: 

• While nearly 90% of the population has been vaccinated and a growing number received boosters, the rates are lower for the elderly: 82% for those between 70 and 79 and about 51% for those over 80, health officials said in mid-March. (In Hong Kong, which had similar problems vaccinating the elderly, people 65 and older accounted for more than 90% of the more than 9,000 Covid-related deaths in the city this year through April.)
• Many analysts point to the lower efficacy of vaccines developed in China. The most widely used are inactivated shots, which offered less protection against infection caused by the original strain of the virus in clinical trials than the novel mRNA vaccines developed by Pfizer Inc., BioNTech SE and Moderna Inc. The mRNA vaccines, unavailable in mainland China, are the backbone of immunization elsewhere in the world.
• The inactivated vaccines also appear to produce fewer protective antibodies against the omicron variant than those induced by shots developed in the West after three doses.
• Chinese health officials have made it clear that vaccination alone isn’t enough, since breakthrough infections are common even with Western vaccines. Researchers at Peking University estimated China would face a “colossal outbreak,” with more than 630,000 infections a day if it were to reopen in a similar manner to the U.S. -- and that was before the more-infectious omicron became predominant.
• The run on hospitals across the world, both in under-resourced places like India and in the developed world, is a constant reminder about how China’s patchy hospital network could easily crash under a sudden spike in infections.
• Switching tactics to let the virus infect a large swath of the population could create bad optics ahead of the national congress of the ruling Communist Party slated for later this year, where Xi is expected to try to extend his power.

5. What’s the cost to the rest of the world?

Covid Zero has sent ripples through the global supply chain. Outbreaks have led to temporary production halts at the China-based factories of top carmakers in the northern port city of Tianjin for people to undergo mass testing. Foxconn briefly suspended operations at its Shenzhen sites, one of which produces iPhones. The monthlong lockdown of Xi’an caused disruption for leading chipmakers Micron Technology Inc and Samsung Electronics Co., while Toyota Motor Corp. and Volkswagen AG had to suspend production at factories in Jilin. But abandoning the policy could cause far greater disruptions, at least temporarily, if workers were too sick to show up at work, given how much the world relies on China for everything from raw materials to finished consumer and industrial products. In the worse-case scenario of omicron spreading out of control and China imposing a national lockdown, Bloomberg Economics and Bloomberg Intelligence estimated that could slow China’s economic growth to 1.6% this year -- the lowest in more than four decades -- and send shock waves through the world economy. Among the likely results: lower commodity prices, and a more gradual pace of Federal Reserve interest-rate hikes.

6. What’s the endgame for China?

China has given no sign of backing away from its strategy in the hope that reacting forcibly to each flareup will quickly contain it with few economic and social ramifications. While local lockdowns cause disruptions and spur complaints on social media, the strategy ensures people in the rest of the country can generally carry on with normal life. The country’s top virus expert said in March that China should stick to its strategy, while fine-tuning some measures to be more targeted and deployed quicker to deal with omicron. Ma Xiaowei, head of China’s National Health Commission, called in April for “a clear-cut stance in opposing the wrongful thoughts of living with virus.” Some experts think the strategy will eventually crumble as the virus becomes too transmissible to control. Another possibility is a new variant may emerge that’s mild enough for the government to relent without harming the population.

7. What’s the outlook for Hong Kong?

The financial hub and gateway to China has prioritized aligning its policy with the mainland in an effort to reopen the border. Successive outbreaks on both sides have kept that from happening. Chief Executive Carrie Lam has vowed to stick with Covid Zero while conceding the city doesn’t have the resources the mainland does to extinguish outbreaks. As omicron swept through Hong Kong early this year, public hospitals became overcrowded and the government’s priorities shifted to vaccinating the elderly and reducing fatalities. In March, after acknowledging that public tolerance was fading, Lam suspended a plan for mandatory citywide testing and instead sent kits to all residents and asked them to test themselves at home. She also announced the lifting of a ban on flights from nine countries including the U.S. and U.K., and cut by half the time incoming travelers need to spend in hotel quarantine -- provided they test negative. With daily case numbers falling, the city began to ease social-distancing restrictions in mid-April, with more to follow if there is no rebound in infections, Lam said, but talks on reopening borders would have to wait.

The Reference Shelf:

• Bloomberg Opinion’s Shuli Ren looks at the role fear of the virus plays in China, and Therese Raphael and Sam Fazeli examine why China can’t loosen up yet.
• Bloomberg Economics and Bloomberg Intelligence analyzed three ways China could exit Covid Zero.
• Businessweek digs into the mounting economic damage from Covid Zero, and a Big Take looks at the havoc it wreaks.
• More QuickTakes on what we know about omicron and Covid therapies.
• Some of the stranger things that have been in China’s crosshairs.
• Bloomberg’s Resilience Ranking charts the best and worst places to be during the pandemic.

©2022 Bloomberg L.P.

With assistance from Bloomberg