In response to the massive Covid outbreak in Shanghai, which has caused the greatest damage to China since Covid first took hold in 2020, the Chinese government implemented over two months of strict lockdown in March 2022. The country's financial capital experienced a citywide lockdown causing severe disruption to its 25 million residents and the economy. Shanghai just eased a range of Covid-19 restrictions on 1st Jun in a step towards returning to normal after a two-month lockdown. The government has announced that most of the 25 million residents can return to work, except for the high-risk area. All businesses can reopen, buses and trains can return to regular service, and the government lifts restrictions on private vehicles. Malls and other commercial areas can operate as long as overall passenger traffic does not exceed 75% of their maximum capacity. Compared with the Zero-Covid policy in Wuhan, the new Zero-Covid approach in Shanghai emphasized a 'dynamic' zero. The dynamic Zero-Covid policy still highlights mass Covid testing, travel restriction and centralized quarantine to bring down the virus spread and minimize economic shock. The central government suggests that 'dynamic' Zero-Covid will allow local authorities to adopt a different strategy based on regional characteristics.
During the two-month lockdown, almost all Shanghai industries, restaurants, and stores shut down. It caused food shortages and delivery bottlenecks for the whole city and significant business and economic impacts. It also sparked an unexpected amount of criticism on various social media platforms. Xi, the president of China, respond in his speech, "We will resolutely struggle against all words and deeds that distort, doubt and deny our epidemic prevention policies." Still, the concern and anxiety remain in the government policy because no one can guarantee that the highly repeatable Omicron virus outbreak will not return.
According to the study, Shanghai only added 15 new positive covid cases in a single day before the lockdown was lifted (31st May), bringing the total number of confirmed cases to its lowest level since early March. For four days in a row, no new Covid deaths were reported in the city.
Empirical data can back up China's dynamic zero-COVID policy's success in containing Omicron. However, the question remains under what cost and can last how much longer? This paper aims to discuss the economic cost and the political reasons behind the dynamic Zero-Covid policy.
The core issue that needs to be addressed by the Chinese government is how to balance public health benefits and economic costs. Shanghai, as the largest financial centre and economic powerhouse in China, has paid a substantial financial and personal price due to the strict lockdown strategy. The Shanghai government stated that "the task of accelerating economic and social recovery is becoming increasingly urgent". The rigorous lockdown strategy had harmed the Shanghai economy and export growth. Given the importance of Shanghai in the global supply chain, China's COVID situation is likely to trigger more supply chain shortages, particularly in high-end manufacturing, technology equipment, and chips.
According to the local statistics bureau, the manufacturing industries in Shanghai's Yangtze River Delta shrank 61.5% in April compared to the previous year. Under the 'Zero-Covid' policy and strict control requirements throughout the lockdowns, the region's intra-city and cross-regional movement of people decreased significantly. A recent study released by the Shanghai Retail Business Association states the retail chain industry faced a high risk of shop closures and revenue losses. The small business owners have to bear the cost of rent, merchandise losses, and other operating expenses. For supply-protecting businesses such as supermarkets and agricultural supply chains, there was additional pressure to pay for labour, facilities and other costs to secure supply. Based on the survey data, over 30% of the supply-protecting companies had lost more than $10 million in revenue in just a week.
In the meantime, according to a survey conducted by the European Chamber of Commerce in China, European firms based in China are beginning to feel the harmful effects of Beijing's "zero-COVID" policy. According to the data, 23% of the companies consider shifting current or planned investments out of China and into other markets. 92% of the companies' supply chains were affected by the port closure, international road freight drop, and increased sea freight costs.
International tourism is another industry that the Zero-COVID policy has negatively impacted. China's travel bans have severely restricted its citizens' foreign travel, reducing travel spend by up to $300 billion. Although the tourism industry recovered gradually since late last year, it is still far below pre-COVID levels. Furthermore, Zero-COVID restrictions are making it more difficult for Chinese students to study abroad, affecting a significant source of revenue for many international universities, notably in the United States, the United Kingdom, and Australia.
Strict Zero-Covid Policy as a Political Decision
Politics comes first in today's China, and strict control of COVID-19 has become an essential cornerstone of the Communist Party's performance-based legitimacy. Many reports argue that the zero-COVID policy is hard to change since China's political system has historically prioritized stability. President Xi Jinping has repeatedly emphasized the importance of the dynamic Covid-Zero approach. The Chinese Communist Party's 20th National Congress is scheduled to take place this autumn. President Xi is expected to secure a third term in office, which adds to the pressure to prioritize stability and continuity above all else.
Some of the leading experts and WHO have concerned about the Zero-Covid policy may not be sustainable. However, political realities dictate that the situation is hard to change, at least for now. China's overall policy of "dynamic zero-Covid’ policy will remain in place.
BBC (2022). Why Shanghai has done a U-turn on its ‘relaxed’ Covid approach. BBC News. [online] 11 Apr. Available at: https://www.bbc.co.uk/news/world-asia-china-61023811.
García Herrero, A., Ze Yu, S., Zeng, K. and de Jonquieres, G. (2022). Ask the Experts: How does China’s dynamic zero-COVID policy impact the global economy? [online] China Dialogues. Available at: https://blogs.lse.ac.uk/cff/2022/03/29/ask-the-experts-how-does-chinas-dynamic-zero-covid-policy-impact-the-global-economy/.
Morgan, P. (2022). Shanghai’s lockdown struggles illustrate that politics trumps economics in today’s China. [online] China Dialogues. Available at: https://blogs.lse.ac.uk/cff/2022/04/25/shanghais-lockdown-struggles-illustrate-that-politics-trumps-economics-in-todays-china/ [Accessed 7 Jun. 2022].
Reuters (2022). After lockdown, Shanghai tries to mend fences with foreign firms. Reuters. [online] 8 Jun. Available at: https://www.reuters.com/markets/asia/after-lockdown-shanghai-tries-mend-fences-with-foreign-firms-2022-06-08/ [Accessed 8 Jun. 2022].
Wires, N. (2022). Shanghai eases Covid restrictions as two-month lockdown ends. [online] France 24. Available at: https://www.france24.com/en/asia-pacific/20220601-shanghai-eases-covid-restrictions-as-two-month-long-lockdown-ends.