Aidan Yao

Macroscope | China can’t escape economic pain of its zero-Covid policy as case numbers rise and cities brace for lockdown

As China faces its biggest Covid-19 outbreak yet, the economic impact of the government’s strict approach will make it difficult to meet annual growth targets

There are signs the policy is being recalibrated to prepare for living with the virus, but the moderation will do little to ease growth pains in the near term

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A lone pedestrian passes shuttered stores along the near-empty Nanjing Road shopping street in Shanghai, where parts of the city are under lockdown. Photo: Bloomberg

Aidan Yao

Published: 4:30pm, 6 Apr 2022

A vicious flare-up of Covid-19 cases is presenting China with its toughest public health challenge since the onset of the pandemic. With more than 38,500 confirmed cases and 70,600 asymptomatic cases accumulatively, March 2022 was the single biggest month of reported coronavirus infections, outstripping February 2020’s 69,500.

While these numbers still look tame relative to those of developed countries which have long given up fighting the virus, they are shockingly large for China with its “zero-Covid” approach, supposed to insulate the country from the pandemic.

Some policy mistakes – such as late and ineffective responses – and a lack of adequate appreciation for the higher transmissibility of the new variant are likely to blame for the current predicament.

China’s experience over the past two years shows that the zero-Covid strategy is the most effective when it is implemented swiftly at the start of an outbreak. Stamping out the infections before the virus has a chance to spread is key to keeping the overall cost of the strategy low even if it involves implementing some draconian measures for a short period.

The challenge now is that not only has the virus become more nimble and transmissible, China has also probably missed the optimal time to confine infections. With more than 20 provinces and regions reporting local cases, putting the genie back in the bottle will take greater efforts and incur heftier costs.

The economic cost of strictly adhering to a zero-tolerance approach is mounting as a growing number of cities implement lockdowns. Shenzhen put its economy on hold for a week in late March and was successful in stamping out the outbreak. Shanghai – China’s largest city with 24 million people – has been in a two-phased lockdown since last week. But significantly higher infection rates – partly due to the city’s late response – mean that the battle may take longer to win.

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Beijing Railway Station empties as China battles its largest Covid-19 outbreak