It’s been over two years since the start of the COVID pandemic. There were many assumptions originally made that we can now empirically prove to be false. Perhaps one of the biggest false narratives that was spread was the idea of getting rid of COVID. Originally this idea manifested itself in the form of lockdowns: if we all stay at home, the virus will stop spreading and COVID will go away. Multiple lockdowns later, that hypothesis was clearly wrong. Then came the idea of herd immunity: if every single person gets a vaccine, COVID will run out of people to infect. Once again, multiple doses later and the theory of herd immunity has been relegated to wishful thinking.
In response, most of the world has come to the realisation that we must learn to live with COVID. Unfortunately, China is sticking to their zero-COVID policy. Xi Jinping is likely to be re-elected for a third term as China’s top leader at the 20th Communist Party Congress this year. Since the start of the pandemic, he has praised the country’s zero-COVID stance and, in doing so, tied his political destiny to the endorsement of such policy. While the policy was successful initially, the more infectious omicron variant has highlighted the downside of an authoritarian regime. Xi Jinping has reaffirmed his commitment to the zero-COVID strategy and is vowing to crack down on any criticism.
Economically, this decision has been disastrous for the world’s second largest economy. Towards the end of March, Shanghai began putting its 26 million residents into lockdown. Freight traffic volumes in the city crashed 81%. This has knock on impacts on the supply chain as factories in Jiangsu province, which was not under a lockdown, are unable to manufacture cars as they cannot get shipments from their subcontractors. In Starbucks’ latest set of earnings, the coffee giant complained that 72% of the 225 Chinese cities it operates in are under some form of lockdown. For local Chinese mayors, the only metric they are being judged on is the number of COVID cases – this means the economy takes a back seat.
China is the world’s factory and Shanghai is the world’s largest port. The average waiting time for container ships at the port has tripled. This is bound to have knock on impacts globally but shortages of goods in Europe and the US will only become evident in the months to come. This could add further fuel to the inflation fire as too much money chases too few goods.
At some stage, COVID cases will drop in China and the economy will reopen again – only for the next variant and wave of infections to hit the country. In the meantime, global multinationals will be forced to rethink their supply chains and look to alternative countries for sourcing and manufacturing. If China does not rethink its zero-COVID policy soon, it risks permanently damaging its competitiveness on the global stage.