China Is Stuck With Zero-Covid Policy For Now Regardless of Protests

AFTER ALMOST THREE years of lockdowns and mandatory testing and quarantines to prevent the spread of Covid-19, urban Chinese are getting antsy.

The authorities have announced some easing of the zero-Covid strategy. However, a long list of changes amounts to little more than shortening the mandatory quarantine period for inbound travellers and scrapping a system where airlines are penalized for carrying infected passengers.

Only the reduction in the strictness of quarantines triggered by second-order contacts touches daily life. None of that deals with the food shortages, price gouging and difficulty getting medical treatment when residents are confined to their homes, whether that is called a lockdown or voluntary static management.

Many of the changes direct local authorities to cope with local outbreaks rapidly and effectively without resorting to lengthy citywide shutdowns, as happened in Shanghai earlier this year.

To officials, the changes may seem substantial, and the initial steps along the path to ending zero-Covid that will be long, and needs to go through more extensive vaccination of the elderly, whose vaccination rates are still too low to allow living with Covid in the way that other countries have decided to do

The discontent that bubbled over into the streets of Guangzhou is only the latest example of how this discontent is starting to manifest. As with the recent protests in Lhasa, this one appears to have involved many migrant workers. For that group, a lockdown cuts off the ability to work and a livelihood that is already precarious.

With Covid workers being attacked and barriers pulled down, it could as readily be called a riot as a protest. Such social instability will worry senior leadership as it knows it has to stick with zero Covid for now, regardless of the cost.

Economic costs can be swallowed, however reluctantly, but social instability is altogether more undigestible. Arrests as a result of lockdown protests are starting to tick up.

The 17,000 new Covid infections that China reported on Monday were the highest daily total since late April. The outbreak in Guangzhou accounts for most of them, but there have been surges in Beijing and Chongqing.

Covid Outbreaks Across China Stress Zero-Covid Policy

GUANGZHOU IS STRUGGLING to avoid being the next Shanghai in the sense of being forced into a citywide lockdown to curb a flare-up in Covid-19 cases.

The city reported 2,377 new locally transmitted infections on November 7, up from 1,971 the previous day. Two weeks ago, day-on-day increases were in the double digits.

Guangzhou’s cases account for one-third of new locally transmitted infections across the country. According to China’s health authority, there were 7,475 reported cases nationally on November 7, up from 5,496 the day before. That is the highest daily total since May 1.

Many districts in Guangzhou have imposed curbs of varying severity as city authorities undertake the Sisyphean task of enforcing the zero-Covid policy to be as undisruptive as possible. So far, central Haizhu is the only district in total lockdown.

Elsewhere in the city, some compounds and neighbourhoods have been sealed off with restricted food and other courier deliveries, public transport services have been suspended, entertainment venues and restaurants closed and daily testing introduced.

The Guangzhou outbreak is particularly threatening economically as the city and its surrounding region is a major manufacturing hub. The rest of the world will feel the knock-on effects via supply-chain disruptions.

Further north, Zhengzhou, the capital of central Henan province and home of the giant Foxconn electronics factory, is under some lockdowns, while in Beijing, which has seen a minor flare-up in new cases, selective lockdowns are being imposed.

The outbreak in Hohhot in Inner Mongolia remains the second most serious after Guangzhou’s, with 1,760 new local cases reported for November 7, up from 1,013 a day earlier. Hohhot has been locked down since early last month.

However, the dispersion of new cases across the country indicates the strain the zero-Covid policy is under, regardless of the ‘unswerving‘ official commitment to it.

Incidences of public pushback are increasing, with a street clash between residents and health workers on Monday in Shangdong province leading to seven arrests, according to police.

Counting The Economic Cost of Zero-Covid

CHINA HAS TRADED economic growth for saving lives in the pandemic — the quid pro quo of its zero-Covid policy — and criticised Western nations for doing the opposite.

A new paper by five economists from Chinese and US universities, led by Jingjing Chen of Tsinghua University, seeks to put a hard number on that hit to the economy.

It is a large one.

The quintet estimates that if the four big cities of Beijing, Shanghai, Guangdong and Shenzhen underwent a one-month full-scale lockdown, China’s real GDP would fall by up to 8.6% during the period.

They reached their estimate by analysing real-time data of inter-city road haulage rather than the more commonly used measure of consumption declines.

Applying their model to the most extreme case scenario — all Chinese cities put into full-scale lockdown for one month — GDP would decline by 53% in the month.

It is unlikely, but not impossible given the Omicron breakthrough, that Beijing, Shanghai, Guangdong and Shenzhen would be put into lockdown simultaneously for that long. Nonetheless, the authors point out that a full-scale lockdown of a single big city would be sufficient to impact national GDP:

The largest three effects come from Shanghai, Beijing and Shenzhen, where full-scale lockdown will knock 2.7%, 2.5% and 1.8% off the aggregate real income, respectively.

The paper gives academic backing to Shanghai authorities’ efforts to avoid a full-scale lockdown of the country’s financial and commercial hub for as long as possible.

The authors note that their research looks at only the short-term impacts of citywide lockdowns and does not consider the effects on expectations and saving and investment decisions in the longer term.

The authors also conclude that a city’s economic size is the primary determinant of the aggregate effect of locking it down. Yet, a city’s position in the country’s trade network plays a more significant role in the spillover effects. These can account for about 10% of the aggregate impact.

The strictness, severity and persistence of China’s lockdowns make international comparisons difficult. However, the authors say that the economic losses caused by Chinese lockdowns are four times as large as those caused by the Italian and Canadian lockdowns in the second quarter of last year.

Omicron Continues To Challenge China’s Zero-Covid

WORKD REACHES US of panic food buying in Guangdong. Residents are stripping supermarket shelves bare, fearing the possibility of a Shanghai-style citywide lockdown following the discovery of new Covid-19 cases in Guangdong’s provincial capital. Authorities are due to start mass testing. Given Beijing’s doubling down on its zero-Covid policy, restrictions on movement will surely follow.

Meanwhile, Shanghai authorities are suggesting some slight easing of the severe lockdown residents there have been under for more than a week. They will categorise districts into three types according to the level of risk from Covid. Once a section achieves the least risky status, some of the strict restrictions on movement may be eased locally.

That will still take some time to pass. All infectious cases will have to be moved to within centralised Winter Olympic-like ‘closed-loop’ central facilities first so the outbreak is contained there and cannot spread. Jilin in the northeast is only just coming out of its lockdown after 33-days.

China’s largest city and financial and commercial hub is still struggling to provide the locked-down with basic food supplies and medical care. However, reports say the situation has stopped getting worse and is improving in some districts as the logjams in distribution start to ease.

Shanghai has experienced China’s worst coronavirus outbreak since the early days of the pandemic. The under vaccination of the elderly and relative ineffectiveness of China’s vaccines — Sinovac cuts the death rate tenfold for over-80s but is roughly half as effective as the Pfizer-BioNTech vaccine — have painted Beijing into a corner.

It has little option but to stick with its zero-Covid policy despite its inability to deal with the rapid spread of the high-contagious but less fatal Omicron variant. Nonetheless, zero-Covid now no longer means zero local cases but zero local cases outside quarantine facilities.

Attempting to live with the virus as other countries are now doing would likely result in a politically unacceptable wave of deaths and hospitalisations until widespread vaccination with more effective vaccines could be achieved on a mass scale. That would require a national roll-out of an indigenous mRNA vaccine that would take months to administer the initial two shots.

It would also undercut the official narrative of how China’s success in keeping the death rate low by international standards stands in contrast with Western governments’ willingness to accept high death rates among their citizens in order to reopen economies.

China Plans Mass Quarantine For International Travellers

CHINA HAS MAINTAINED stringent restrictions on inbound international travel for fear of an imported wave of Covid-19. Travellers who have been allowed to arrive are subject to mandatory quarantine. There is talk that this state of affairs will continue until at least the Beijing Winter Olympics in February next year.

However, in the meantime, it may open one carefully controlled centralised airlock. Late last month, Zhong Nanshan, one of China’s most eminent epidemiologists and one of the architects of its early containment and prevention measures, revealed plans to build a giant quarantine centre in Guangzhou capable of accommodating almost all international travellers entering China and isolating some 5,000 at a time. Residents from high-risk areas locally would also be isolated there. A similar facility is being considered for Shenzhen, Zhong said.

An outbreak of the highly contagious Delta variant is already spreading in the region, and existing quarantine arrangements to isolate travellers in hotels are not working. Further, the domestically-made vaccines appear to be less effective in suppressing the Delta variant than Pfizer and Moderna’s.

The ‘track and trace’ programme in Guangdong has become more stringent, and travel from the province to other parts of the country has been restricted from the start of this month to residents who can show a negative Covid-19 test with the previous 48 hours and need to travel.

The impact on the container port cluster in the Pearl River estuary (Yantian, Shekou, Chiwan and Nansha), a hub for the country’s manufactured exports, has been to extend turnaround times for shipping since late May, with delays of more than two weeks being reported. These delays are now easing, but they remain high and vulnerable to further local Covid-19 lockdowns, adding another bottleneck to supply chains.

China Inaugurates World’s Longest High-Speed Rail Line

Train G502 on the inaugural run of the Beijing-Guangzhou line, the world’s longest high-speed rail line.

Passenger service has started on the world’s longest high-speed rail line, connecting Beijing and Guangzhou, a journey of 2,298 kilometers. The link cuts the travel time to eight hours from 21. It is a centerpiece in the build-out of the country’s at times scandal and safety-plagued high-speed rail network which is due to cover 16,000 kilometers by 2015. By then, the Beijing-Guangzhou line is due to be extended to Hong Kong.

When Beijing Betters London And Shanghai LA

By 2025, Shanghai and Beijing will have higher GDPs than Los Angeles and London, a further sign of the world’s eastwards economic shift. The prediction comes from the McKinsey Global Institute, the economic research arm of McKinsey & Co., the international consultancy firm, which has been working on mapping the changing economic power of the world’s metropolitan areas, and is recirculating some work on this it first released in March. Shanghai is already among the world’s top 50 cities ranked by GDP, but as well a Beijing, Chengdu, Chongqing, Foshan, Guangzhou, Hangzhou, Nanjing, Shenyang, Shenzhen, Tianjin, Wuhan and Xian will all join it by 2025, McKinsey predicts. European cities will be most numerous among the dropouts, but another will be Taipei.

Corporate Arm-Twisting Through The Courts

The arrest of a Chinese-born Australian citizen for alleged illegal business activities immediately triggers memories of the arrests earlier this year of Stern Hu and his three Rio Tinto colleagues. The case of Matthew Ng, founder and chief executive of Et-China, a travel agency based in Guangzhou and listed on London’s Alternative Investment Market, is not on the same scale but does raise some potential red flags for foreign companies on the acquisition trail in China.

Ng was detained on Nov. 10  and is being held in Guangzhou’s No. 3 Detention Center. According to a company statement on Nov. 22, Ng is being held

as a suspect of the crime of misappropriation of company assets. At present Et-china has no further information about the cause of his detention. As far as Et-china is aware at present Matthew Ng has not been charged with any offense.

Australian foreign ministry officials have since said that Ng has been charged with embezzlement. If convicted, the executive faces up to 20 years in jail.

We aren’t aware of any further details being made public by the authorities, but we understand that the case revolves around Et-China’s $10 million acquisition in 2007 of a majority stake in GZL, one of the largest travel businesses in southern China. Lingnan, a Guangzhou-owned enterprise, is the other main shareholder along with three other state-owned enterprises. GZL’s value has since increased eightfold. Lingnan feels it was underpaid for the shares it sold to Et-China and wants GZL back. Lingnan is also said to be unhappy that the Swiss travel group Kuoni, which already owns a third of Et-China, is in the process of taking Ng’s company over fully in a deal would value Et-China at $125 million. Lingnan has told Kuomi that Et-China bought GZL illegally, a move that has held up the completion of the sale.

We don’t know where the truth lies, but if local shareholders are resorting to a legal system not designed to settle corporate disputes to do just that it risks dragging more deals in to that murky world of  business, political connections and a legal process that detains first and asks questions later.