What is China doing? As most countries resign themselves to living with COVID, which shows no sign of receding anytime soon, the world’s most populous nation continues to take a very different path — at great cost, and with seemingly no endgame in sight. I spoke with Nancy Qian, a Professor of Managerial Economics & Decision Sciences at Northwestern University, who has written extensively about the Chinese economy, about why a policy that ceased making much sense long ago endures.
I’m quite confused by the public-health strategy China is pursuing at the moment. It’s the only country that continues to take a “COVID zero” approach, which means doing extensive mass testing to prevent outbreaks, locking down cities at great financial and social costs when outbreaks do happen, and the rest of it. But we know that the virus is continuing to mutate and evade defenses in every country around the world, which makes the idea of containing it look more and more fantastical by the day. What do you make of the situation there at the moment?
I think what we’re witnessing now is a collision of a couple of different forces. One is simply that China was very successful with its lockdown policy before vaccines were out. A consequence of that policy is that the country and its infrastructure are just not set up to deal with high infection rates. It’s not just the infrastructure; it’s also the mentality of the people. I’m from Shanghai, and I have a lot of elderly relatives in China and outside it. Outside, everyone’s vaccinated. Inside, no one’s vaccinated.
My relatives in Shanghai are very aware of the outside world. They’re not isolated from information and vaccination rates and immunization rates and things like that. The thing that’s really holding them back is that they’re afraid of side effects. They’re doing, in my mind, a very rational cost-benefit analysis. They’re saying, “China, unlike the West, has had very low infection rates. The probability of getting infected and dying is low.” Especially since they have adjusted in many ways. They don’t socialize as much as before.
In China, there’s only one vaccine that’s available to people. The information about side effects, about success rates — it’s not that transparent, and people are a little bit wary. It’s not like in the U.S., where you can look at independent evaluations of all of the different vaccines around, you can talk to your doctor, you can watch the news. Everyone’s having very often contentious but open debates, which we know from research builds trust in the long run.
My relatives know that in China, they don’t have open-access information about the Chinese vaccines, which we know are not as great as the western ones, though they’re a lot better than no vaccine. In the meantime, rumors abound of side effects.
Isn’t there a sense among your relatives and everyone else that there doesn’t seem to be any endgame in sight to this cycle of lockdowns — or at least the threat of lockdowns?
Yes. I think, at some point, the people I know are going to get vaccinated. I see movement; I see a shift in sentiments. Part of it is I think they did not think — no one thought — that they would lock down Shanghai. Even now, a lot of people think they won’t lock down Shanghai again. There’s also a sense that they have to change policy at some point, so do we wait it out or do we get vaccinated? There are also lots of rumors on social media. Nobody knows what to trust. But I think there are larger political forces that are playing out. People thought in the beginning, in January 2020, that the coronavirus would topple the government because it was just such a disaster.
Right. President Xi Jinping’s government mishandled it at the beginning, covering up early cases and triggering a widespread breach of trust. Then they turned around and put in place a policy that was quite successful for a while.
The success is really in relative terms because it was so bad in the West, so bad outside of China. With China’s ability to do these massive lockdowns, they were able to really turn it around in terms of the framing of the success for the government and the popularity of the government. They really invested in that framing, and I think they were a bit myopic. They didn’t hedge their bets and think about, What will we do next? What if the West comes up with a vaccine? What if we come up with a vaccine in a year?
They either didn’t think about it or just didn’t act on it. They really invested very heavily in the success of COVID zero and the superiority of the Chinese government and its ability to lock down at some point. They missed the window where they could have shifted away from that with minimal political losses.
We’re talking about the political cost of going back on this. It’s very difficult to get a sense of how popular the policy is in a country that’s characterized by so much censorship.
COVID zero is tremendously unpopular. I’ve never met or talked to anyone who thinks that it’s a good policy or that they don’t need to get out of it.
That’s what I don’t really get. GDP numbers released last week show that the economy slowed in the last quarter, in large part thanks to lockdowns. COVID zero is having some actually devastating effects in a macro sense and also in a global sense, and it’s also unpopular among regular people. So who actually wants this anymore?
I think what’s going on is an internal political struggle. People view China as a monolith from the outside, like one power unity, one Communist Party. In reality, the Communist Party has over a million members. The standing council is seven people, not one. They have different places, different experiences. China is actually ruled by people with very diverse opinions under one banner. Xi Jinping is powerful, but like any government with a lot of players governing a large country, you’re going to have different groups. There are people who will support him and people who don’t. I think that for Xi Jinping and his supporters, they don’t want to back down from COVID zero because they see that as a step toward undermining their political power within China. And they may be correct.
And there’s a national conference of the Communist Party coming up at the end of the year, which could further cement Xi’s power for the next several years.
Yes, there is a meeting coming up. One thing to keep an eye on is in China, nothing happens immediately. A lot of things happen behind closed doors, and they don’t air their dirty laundry in public, with very few exceptions.
It will be interesting to keep an eye on who keeps their position and who gets replaced, which I foresee happening over August and September and October. Are they going to be more allied with Xi Jinping and his supporters or Li Keqiang or other people? In China, it’s not like we have an opposition party. But I would say that Li Keqiang prioritizes the economy more. Those are the subtle, observable changes that I would keep an eye on.
I think one thing we also want to observe is, as more variants come in, are they locking down more, or are they easing off de facto? While saying “COVID zero,” are they actually doing massive lockdowns? And what are they doing for the elderly vaccination rates? Right now, the government has thrown out massive amounts of money to get the elderly vaccinated. Let’s see if it actually happens.
If COVID zero does persist for months or even years longer, how bad could it get for China’s economy and the rest of the world’s?
Right before the Shanghai lockdown, macroeconomists from Princeton University and the Hong Kong University of Science and Technology did a study using micro-data, trying to figure out how costly it is when China does a lockdown like it did in Xi’an, which at the time was the biggest and economically most costly lockdown. They basically said, “If there’s another lockdown like in Xi’an, Chinese GDP is going to go down by 4 percentage points.” That’s a lot.
Xi’an is a lot smaller than Shanghai, and Shanghai locked down for two months. They don’t have estimates for Shanghai because data’s not available. I’m sure you’ve seen the numbers — half the cities in China are under some sort of a lockdown or another. I can’t give you a number, but 4 percentage points is the baseline, and you can just keep adding up all these cities. We’re talking about a huge, huge economic cost. In fact, I wouldn’t be surprised if, at some point, they just stopped giving out GDP numbers for a quarter, like they did when the pandemic first hit.
Most of the things they produce and sell are produced or sold to other Chinese. All these lockdowns are disrupting that. We’re not even talking about the global supply chain and the economic losses of China and the world from the break of international trade.
When you add that up, the losses of China are even bigger. If China stops right now, we’re just talking about temporary shocks. The concern is that if it continues to disrupt the global supply chain, the rest of the world is going to adjust. The U.S. will switch its supply chains to Latin America, to India. Same with Europe. For the rest of the world, it’s not ideal, but it’ll be fine.
When you think about it, there’s a lot of fixed costs that companies invest into doing trade with a country. A lot of it is physical: getting the right container shipped to the right docks, the right depth, the machine, and so on. A lot of it is personnel: I have to hire people in India or Mexico. Nike has to hire those people if we’re going to manufacture in those countries. We have to build factories in those countries.
But once the rest of the world adapts to the big fixed cost and the changing global-supply-chain logistics, they’re not going to be as willing to switch back to China when the country opens up. China really does not want to get to that point.
This interview has been edited for length and clarity.
