But ending the policy now could unleash chaos.
Not all businesses have struggled through China’s zero-Covid era. Andon Health, a Shenzhen-listed company that makes Covid tests and medical devices, for example, posted a 32,000% increase in net profits in the third quarter of the year, compared with the same period in 2021, as it cranked out testing devices for China and America. The 35 largest companies producing Covid-19 tests raked in some 150bn yuan ($21bn) in revenues in the first half of 2022, minting a new generation of pandemic tycoons.
But outside China’s Covid-industrial complex, the economy is suffering. Lockdowns and onerous restrictions on movement have stunted consumer confidence and economic growth. Over the past fortnight they have inspired protests across the country, with tensions escalating over the weekend. Young people on the streets of Shanghai on November 27th rejected the prospect of endless testing and lockdowns, chanting: “We don’t want Covid tests; we want freedom.”
The economic effects of China’s attempt to rid itself of the virus have never been clearer. The movement of people has been severely curtailed. During the week of November 14th, as Covid cases rose, the number of domestic flights fell by 45% year on year. China’s three biggest airlines lost a combined 74bn yuan in the first nine months of 2022.
Subway traffic in China’s ten largest cities was down by 32% year on year, according to Macquarie, an Australian investment bank. Box-office revenues, a gauge of people’s willingness to go out and about, tumbled by 64%. Only 42% of China’s cinemas were open on November 27th. Some of the largest cinemas have closed down altogether.
Lockdowns are now in place in cities accounting for about a quarter of China’s gdp, surpassing a previous peak of about a fifth in mid-April, when Shanghai was shuttered, according to an index compiled by Nomura, a Japanese investment bank. China’s youth unemployment rate hit a record high in July at 19.9%. A measure of road-freight throughput in the week to November 25th was 33% below its level the year before.
With Covid infections hitting unprecedented highs, economic policymakers are attempting to gin up the economy. The central bank has announced a cut to lenders’ required reserve ratios. Technocrats have attempted to breathe new life and confidence into China’s property market, where sales have plummeted over the past year.
Easing measures announced in mid-November have sought to help struggling developers gain access to credit, so that they can continue building. Sentiment is expected to improve a little in time. But continued lockdowns and dire consumer confidence will probably stop potential homebuyers making purchases. And the prospects for the economy as a whole in 2023 are looking increasingly gloomy.
Keeping out Covid once looked like a good plan. As the rest of the world suffered from the seemingly unstoppable spread of new variants in 2021, China appeared to have largely returned to normal life. Its Covid-related deaths are a tiny fraction of the Covid-related deaths suffered in the rest of the world. But even as other places learnt to live with the virus in 2022, China’s Covid policy, starting with the lockdown of Shanghai, the country’s main business hub, has appeared utterly disorganised and repressive.
Citizens have been subjected to endless testing. Businesses and residential areas can be clamped down without warning. Travel between cities and provinces has become onerous, with each local government enforcing its own version of Covid restrictions.
Rumours of reopening have swirled for weeks, sending Chinese stocks on a wild ride. The central government issued a list of 20 measures on November 11th meant to relax various Covid restrictions, such as removing the need for secondary contacts to quarantine and reducing inbound travellers’ quarantine from seven to five days.
The measures were received by stockmarkets as a sign that China was planning to phase out zero-Covid. But China’s leadership did not intend to send such a signal. Instead the loosening was just a fine-tuning of the policy, aimed, probably, at making it more bearable for a longer period. And even then, the relaxations have been implemented in a hodge-podge manner. As case numbers have risen in many cities, local officials have reverted to broad, arbitrary lockdowns.
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