How China’s COVID-19 Lockdowns Will Impact the Global Economy

With China’s southern tech hub of Shenzhen effected, supply chain problems could get worse.

By , a deputy editor at Foreign Policy.
A worker wearing protective gear walks near a locked down neighborhood in China.
A worker wearing protective gear walks near a locked down neighborhood in China.
A worker wearing protective gear walks near a locked down neighborhood after the detection of new cases of COVID-19 in the Huangpu District of Shanghai on March 17. HECTOR RETAMAL/AFP via Getty Images

This week, more than 50 million people in China were ordered into lockdown—prevented from going to work or even, in some cases, from leaving their homes. It was a rearguard action by the Chinese government to prevent uncontrolled outbreaks of the highly contagious omicron variant of COVID-19.

It’s not yet clear if the lockdowns will be successful in preserving the zero-COVID-19 strategy China has had in place since the start of the pandemic. What already seems obvious is that—with factories closed across China, including in the southern tech hub of Shenzhen—the global economy will take a hit.

Could the Chinese economy be facing a crisis of its own? And how did it come to this—two years into the pandemic? Those are some of the questions that came up in my conversation this week with FP columnist Adam Tooze on the podcast we co-host, Ones and Tooze.

This week, more than 50 million people in China were ordered into lockdown—prevented from going to work or even, in some cases, from leaving their homes. It was a rearguard action by the Chinese government to prevent uncontrolled outbreaks of the highly contagious omicron variant of COVID-19.

It’s not yet clear if the lockdowns will be successful in preserving the zero-COVID-19 strategy China has had in place since the start of the pandemic. What already seems obvious is that—with factories closed across China, including in the southern tech hub of Shenzhen—the global economy will take a hit.

Could the Chinese economy be facing a crisis of its own? And how did it come to this—two years into the pandemic? Those are some of the questions that came up in my conversation this week with FP columnist Adam Tooze on the podcast we co-host, Ones and Tooze.

What follows is a transcript of the interview, edited for clarity and length. For the entire conversation, subscribe to Ones and Tooze on your preferred podcast app.

Cameron Abadi: How does the scale and the severity of the lockdowns in China compare with what we saw at the high point of the pandemic in the West? And is there something about these kinds of lockdowns that raises the likelihood of economic ripple effects for the rest of the world?

Adam Tooze: Theyre certainly serious lockdowns. Theyre far more serious than anything we ever saw in the United States. You know, talking about the West in this context, I think, is a little deceptive because—speaking as somebody who lived through the pandemic in New York—we never experienced a lockdown in either the European or the Chinese sense. It was largely enforced by social conformism rather than any kind of actual coercive measures.

I would say what were looking at in China is probably comparable to what Europe has repeatedly used since the spring of 2020. It involves the closure of major factories, the closure of public facilities, the maintenance only of essential services. But I dont think its going to be quite as draconian as the measures that China itself imposed in Wuhan in February 2020 to stem the original onset of the disease.

These lockdowns matter as much as they do because of where theyre happening. In the first epidemic in China in 2020, the center was Wuhan, which is a key part of the Chinese economy. But Shenzhen and Shanghai are potentially now affected—and that really takes us to the heart of Chinas role in global supply chains. I mean, weve already seen closure announcements by the likes of Foxconn, which is Apples key supplier of iPhones. Major touch-screen manufacturers have shut down. This is really going to impact global supply chains if it extends much beyond the week. And if the experience of China in the spring of 2020 is anything to go by, the resulting mess in global supply chains could take months.

CA: Is this disruptive wave of omicron revealing the incoherence of China’s zero-COVID-19 strategy: of preventing any and all outbreaks? Did Chinese officials think that zero COVID-19 was going to work as a way of riding out the entire pandemic?

AT: Well, I think the first thing to say is that zero COVID-19 should have been all our aims. Its a signal failure of the rest of the world not to have responded to the pandemic that way. Chinas problem is that its trying to pursue a zero-COVID-19 policy in one country. And its a big country with tight border controls. But nevertheless, its really hard to make that work when the rest of the world is basically going for some sort of half combination of herd immunity and high-quality vaccination. And we shouldnt forget that as recently as January this year, thats only weeks ago now, 2,000 people were dying a day in the United States of this disease. So Chinas problem is really the fact that the rest of the world totally failed to come to grips with this disease.

And I think thats why the questions really at this point have got to be about Chinas vaccination program.

CA: So why exactly has the Chinese vaccination program run into difficulties? Have Chinese authorities just not invested enough resources into distributing their own vaccines? Or did they let national pride get in the way of using more effective vaccines developed in the West?

AT: Yeah, I think there are three issues here. But again, first of all, we have to apply a corrective. China managed to vaccinate a billion people by September 2021. Currently, it has distributed 3 billion doses of vaccine, so its mounted the largest vaccine effort in the world.

The questions that have to be asked are about the choice of vaccines, the efficacy of the vaccines theyve used, and their distribution. The Chinese homegrown vaccines are, as we know, much less effective in stopping infection, especially for omicron. They appear to protect against hospitalization and death but not against transmission. And if you have a population that is only partially vaccinated and immunonaive in the sense its not being exposed to COVID-19 at all, thats a really critical flaw.

China does have mRNA programs of its own, but I think its hard to avoid the impression that they want to really resist the importation of Western vaccines. China is, therefore, I think, culpable in the sense that it has not done everything it possibly could to access mRNA technology.

The other thing to say, though, and this is, in a sense, the most dangerous aspect of the situation, is that China has signally failed to vaccinate its older and more vulnerable population. And the numbers here are really already quite staggering: 40 percent of the population in China over the age of 80 has not been vaccinated. In Hong Kong, its almost 70 percent of elderly citizens that have not been vaccinated, whereas (of course) the priority should have been precisely to provide them with vaccines.

Having said all that, if China had turned to the global market for Western mRNA vaccines last year, it would, of course, have run into a brick wall because they were, as we all know, fully ordered by Western high-income countries. Many campaigners are hoping that the production bottlenecks for Pfizer and Moderna vaccines will finally be broken in the coming months and the world will be awash with mRNA vaccines. We imagined, of course, that those would be deployed as a top priority to low-income countries, notably in Africa, where vaccination has not really extended so far. It could be that those reserves of production capacity provide the solution to protect enough of the Chinese population quickly enough. But that would require Beijing jumping over its own shadow.

CA: How precarious is China’s own economy as a result of these lockdowns? Are they combining these lockdowns with the kinds of economic aid measures that we saw to some extent in the West: income assistance to people who can’t work, bailouts to businesses, those kinds of things?

AT: It’s in a pretty precarious situation, and it’s very fast moving as well. The context is that last year, on the back of their success in managing the first two waves of COVID-19, they set about really major structural reform. [Chinese President] Xi Jinping announced a new agenda of “common prosperity” as the goal of his regime. They quite deliberately triggered crises both in the real estate sector and the tech sector, with massive new regulatory measures for the tech sector and the deflation of the huge bubble in housing credit. So that, as it were, was their priority for economic policy, and they set a more modest growth objective of just over 5 percent.

Now, they have walked into this omicron crisis, which is really putting in jeopardy the key centers of production in the south of China. And weve seen a collapse in financial markets unfolding now in China with extraordinary speed. Earlier this week, there was an absolutely massive sell off in the Shanghai stock market. For months now, the debt of real estate companies has been in the basement, downgraded to junk, if that. Its an extremely volatile situation, and I would expect over the next couple of months that we would see Beijing rolling out a variety of different responses. That could be, in part, various types of infrastructure spending.

But they have not, so far, shown themselves very adept at providing support immediately to households in the form of the kind of furlough payments or stimulus checks that the United States and Europe provided. So this, again, will be a very major test of the regime. That kind of stimulus is not, generally speaking, how economic policy in China works. It’s rather slow to actually deliver welfare payments directly to the population. And if this crisis marks a break in that pattern, then I think wed have to say that the common prosperity agenda was developing real heft and real substance.

CA: Weve seen a lot of interruption of supply chains recently—both from these lockdowns and earlier ones elsewhere [as well as] the war in Ukraine. Is there any recognition among economic actors that we might need more redundancies in global supply chains? Are we maybe learning that globalization on its own terms just isnt resistant enough to crises?

AT: I mean, that narrative is certainly buzzing around. I have to say, I personally dont find it terribly convincing. After all, we had the mother, the daddy, the grandaddy, the grandmother of all shocks, you know, with COVID-19 in 2020. Weve never seen anything like it. And what happened to world trade? It bounced back. I dont think we are going to get massively redundant supply chains for chips or smartphones or cars because its simply too expensive to keep that kind of reserve capacity in the system. What we are likely to get is a series of boom-bust cycles provoked by shortages.

When we say were dealing with a supply chain crisis, I mean, whose crisis is it? I mean, its certainly a problem for the consumers, but you have to ask yourself: After all, are the companies involved really losing profit as a result of this? At that point, it becomes serious, and people have to change their business models. So I think theres going to be an adjustment, but it will be driven by the calculus of profit and loss. I dont think its going to be driven by geopolitics. The Biden administrations efforts so far to produce uncoupling from China have been signally unsuccessful, and theyre not really getting buy-in either from American businesses or Americas security policy partners in the rest of Asia, who just simply have too much to lose in their economic connections with China.

Cameron Abadi is a deputy editor at Foreign Policy. Twitter: @CameronAbadi

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