China's Zero-COVID Complexities

Following a rash of protests across cities and campuses against the Xi Jinping government's harsh Zero-COVID regimen, there are indications that the restrictions will be moderated taking local conditions into account. South China Morning Post reported on Tuesday that local governments have signalled a mild easing of Covid-19 restrictions.

Authorities in Guangzhou have stopped requiring everyday testing for the elderly, students and freelancers who do not need to go outside. In Beijing, authorities said high-risk areas should be defined by units and buildings.

But with mainland China reporting 307,802 confirmed cases with symptoms, the government is unlikely to abandon the Zero-COVID policy. Stephen Roach, Senior Fellow at the Paul Tsai China Center at Yale Law School, says in a piece in Foreign Affairs that Xi's commitment to the Zero-COVID policy will stay not only because he is convinced that it serves the social good but also because it is linked to his national security goals.

Justifying the Zero-COVID policy Xi had told the Communist Party Congress on October 16: "In responding to the sudden outbreak of COVID-19, we put the people and their lives above all else, worked to prevent both imported cases and domestic resurgences, and tenaciously pursued a dynamic Zero-COVID policy.

"In launching an all-out people's war to stop the spread of the virus, we have protected the people's health and safety to the greatest extent possible and made tremendously encouraging achievements in both epidemic response and economic and social development."

Xi said this despite knowing that China's economy had been badly hit by the lockdowns and restrictions and was unlikely to improve noticeably in the short-term. Between 1980 and 2020, China's economy showed an annual growth rate of 9%. But in 2022–23, the IMF expects it to grow by less than 4%.

"The over-extended property sector, nagging supply chain disruptions, downward pressures on global trade, and the impact of the war in Ukraine, had also contributed to the decline of the Chinese economy," Roach points out.

Writing in The Diplomat Sarah Hsu said that China's GDP declined by 2.6% in the second quarter of 2022, the slowest since the pandemic began in 2020. She quoted a Hong Kong-based economist who estimated that lockdowns were costing China 3.1% of GDP per month.

Hsu said, 60% of foreign companies were either slashing operations or trying to locate outside China. According to the New York Times youth unemployment reached a record 20% in August 2022.

Western commentators refuse to accept Xi's case that Zero-COVID policy is only for the social good. They either attribute it to the whims of the dictator or say that it is a part of Xi's overall policy of gaining and exercising total control over the population and ensuring national security in an increasingly challenging geopolitical context.

Xi had clearly indicated at the 20th. Party Congress, that he is more worried about ensuring national security in the face of mounting geopolitical challenges than in reviving the economy, Roach points outs. Xi told the Congress that China "faces unparalleled complexity, graveness, and difficulty when navigating perilous, stormy seas."

However, this lopsided approach will not fill the bill, Roach warns. "A country's longer-term economic growth potential can be said to consist of two factors: growth in the workforce and growth in the productivity of the workforce.

"An expanding and increasingly productive workforce is the holy grail of economic growth and development. For 40 years, it worked like a charm for China, where a demographic youth bulge produced a rapid expansion of the working-age population—an expansion that was further amplified by a massive relocation of Chinese workers from low-productivity jobs in the countryside to higher-productivity employment in the cities. That shift was the basis of the economy's explosive growth."

But today the scenario is different, Roach says. "China's working-age population is shrinking, and the population of older adults is growing rapidly; this trend is likely to continue for at least the next 25 years. Such is the legacy of China's one-child policy, which the CCP ended in 2016. The party has been desperately (and so far unsuccessfully) trying to reverse its effects ever since."

Meanwhile, the pace of urbanisation has slowed. With the working population shrinking, productivity growth must accelerate to keep the economy on a solid growth trajectory, Roach says. Productivity fell because Xi shifted investment and employment from the high-productivity private sector and back towards the "ossified state-owned enterprises."

"Severe restrictions were put on a number of popular online industries, including gaming, video, and music. These actions have crushed many of China's once dynamic Internet platform companies, including Alibaba, Baidu, JD.com, Meituan, and Tencent."

Xi explained these curbs saying that these were meant to curb accumulation of wealth in private hands and thus were for the social good. But Roach has a different view.

Xi encouraged high-tech development but these were security-oriented rather than economic development-oriented. China has acquired advanced military capabilities such as hypersonic missiles, stealth aircraft, and world-class naval and space programs. But it has also devised surveillance technology to keep track of the population's activities.

Xi's obsession with security has forced the Biden administration to ban the export of US-made advanced computing and semiconductor products to China to impair its efforts in artificial intelligence and quantum computing, Roach points out.

"Notwithstanding the hundreds of billions of dollars of Chinese capital that has gone into the development of a domestic semiconductor industry, the "chips gap" between Washington and Beijing has continued to grow, in terms of both design and production.

"The party congress made clear China's determination to close the gap, but the Biden administration's recent actions make success unlikely, " Roach says.

The over-concern with security could backfire as it did in the colonial era. Historian Paul Kennedy opined that the British Empire broke up because it was too large and far-flung to be managed effectively by the British because Britain's economy was too weak.

Xi's China does not have the equivalent of the British empire but through its Belt and Road Initiative (BRI) it has invested billions of dollars across the world in a bid to acquire global clout. But the BRI empire is also too large for the Chinese economy to manage and keep it going. Roach believes that China's power projection is "premature."

He goes on to say that there is no one in the Chinese hierarchy to advice Xi from independent standpoints. The helmsman is surrounded by yes-men. The hand-picked new seven-member Standing Committee and the 24-member Central Committee of the Politburo also lack economic expertise.

"The departure from office of seasoned economic advisers such as Wang Qishan, Liu He, Guo Shuqing, and Yi Gang—along with the upcoming retirement of Premier Li Keqiang, who effectively oversaw the management of China's economy—underscores the tilt in the ranks of the senior leadership away from economics and toward national security," Roach points out.

"As productivity falls and Chinese growth stagnates, it is unclear who, if anyone, will tell Xi the toughest truth of all: that his obsession with security is undermining China by weakening the economic foundations on which the country's strength depends."