China’s Lockdowns Take Economic Toll
An omicron surge will likely have long-lasting consequences for GDP growth.
Welcome to Foreign Policy’s China Brief.
Welcome to Foreign Policy’s China Brief.
The highlights this week: Ongoing COVID-19 lockdowns are likely to have long-lasting economic effects, Chinese President Xi Jinping mounts a propaganda push ahead of his unprecedented third term, and the West battles Beijing in the Solomon Islands.
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As Lockdowns Drag On, the Economy Suffers
Nearly all of China’s most prosperous cities currently have some COVID-19 restrictions, ranging from relatively mild measures to empty streets and shuttered compounds. Shanghai remains the worst hit by far; some residents haven’t left their homes for more than a month. A slight dip in new cases didn’t last: Shanghai set a new record of more than 25,000 cases on Tuesday.
Meanwhile, the city’s food situation is still critical, though there are some signs of improvement. Truckers have refused to enter the city for fear of being trapped, delivery services are short staffed, and a lack of coordination continues despite the government’s best efforts.
Facing criticism, the central government has alternated between demanding more from the Shanghai city government and blaming the West. The local government has started culling officials from their posts and, in some areas, producing more impressive food packages than those mocked online. But medical and health problems remain acute, and many foreign consulates have ordered nonessential staff to depart the city.
The trust in the Chinese government generated by controlling the outbreak in Wuhan in 2020 is gone, and people are angry. Shanghai’s initial staggered lockdown approach was intended as an experiment to reduce the impact of restrictions amid the omicron variant. The current crisis seems likely to convince the political leadership that swift and draconian measures are the only way forward. The government is only likely to drop its zero-COVID-19 policy if case numbers become totally overwhelming, as has already happened in Hong Kong.
One underrated factor shaping the impact of these lockdowns is how many Chinese still live in collective housing. Students are trapped in six-person dorms, migrant workers in temporary shelters at building sites, and waiters or shop staff in employer-provided apartments. Along with limited space and lack of freezers, that has limited the ability of households to effectively stockpile resources for lockdowns. There is only so much the average family can keep.
Shanghai’s critical role as a port and logistics hub is also causing supply chain disruptions far beyond the city. Global firms are struggling to keep the production lines rolling while smaller businesses, such as publishing, are factoring in product lead times that stretch into several months. Experts predict worse problems than those of the last two years.
The impacts of lockdowns are undermining prospects for the Chinese economy, including the pledged 5.5 percent GDP growth for this year. Economists have downgraded their predictions significantly, and Chinese Premier Li Keqiang has called for “urgency” and stimulus packages, as China deployed during the 2008 economic crisis. Missing key GDP numbers would be a blow to Chinese President Xi Jinping as he attempts to cement an unprecedented third term this year.
One solution to bad numbers is lying about them: If the Chinese economy really suffers, statistical transparency will likely decline rapidly. The signs are already there: Analysts have widely questioned supposedly strong January and February data.
Furthermore, the COVID-19 death toll is also dubious. Despite Shanghai’s more than 150,000 recorded cases, the authorities have not confirmed a single death—a near impossibility, especially given deaths reported in nursing homes. Instead, officials appear to be recording cases as dying from other causes. As China’s barriers—painstakingly erected against COVID-19—crumble, expect more data discrepancies as the authorities cover the damage.
What We’re Following
Xi’s propaganda push. Amid the COVID-19 crisis in Shanghai and war in Ukraine, the No. 1 priority for core Chinese state media, such as the People’s Daily, this week is promoting Xi. The lead story across multiple outlets on Sunday was “Xi Jinping’s Love for the People”—clearly a long-prepared propaganda rollout ahead of the president’s anointment for a third term. No one was going to let the news get in the way.
There is serious danger of this propaganda push backfiring. Overemphasizing Xi’s love of the people rings hollow when the system is visibly failing many people in Shanghai and elsewhere. The question is whether anyone can do anything about Xi’s top-down rule—or his personality cult. For political leaders, signaling discontent to one another is tricky given the cutthroat nature of elite politics and continuing purges of high-ranking officials.
The battle for the Solomons. Australia and the United States are pressuring the Solomon Islands to renege on a recently agreed to but not yet signed security deal with China over fears that it could lead to the islands becoming the site of a Chinese naval base. China has long sought to expand its presence in the Pacific Ocean, including by using private companies to acquire land for strategic purposes. Given Western influence over island networks, Beijing’s analysts say it should have the same opportunity.
The Solomon Islands—the site of brutal World War II battles—switched recognition from Taipei to Beijing in 2019. The small country is a tragic example of how geopolitical contention can fuel local conflicts, with both Taiwan and China offering bribes in exchange for loyalty. Last November, the Solomon Islands saw a spate of violence over accusations that its prime minister used Chinese money to bribe members of parliament, resulting in China deploying a heavily armed security team.
Meanwhile, the government of the island of Malaita, which has its own independence ambitions and is home to around 150,000 of the Solomon Islands’ 686,000 people, maintains a strong connection to Taiwan.
Transport freezes up. As the battle against COVID-19 continues, transport is frozen across China, feeding supply chain problems and impeding everyday movement. Passenger trains, still the main way most Chinese move between cities, are running at just 30 percent of their usual volume while the airline industry has been hit by the double whammy of fears about the omicron variant and mass cancellations after a tragic plane crash last month.
Even far from Shanghai, highway jams are spreading, with truckers caught by unexpected closures on major routes. Central authorities have forbidden unauthorized closures—meaning those not approved from the top—but local officials concerned about COVID-19 and their political futures appear to be implementing them anyway, as they did in 2020.
Tech and Business
Common prosperity disappears. One of the Chinese government’s favorite economic propaganda slogans of the last year—Xi’s “era of common prosperity”—has virtually disappeared from the agenda in recent weeks as it attempts to revive a faltering business sector. Common prosperity was intended to both close growing income gaps and give the government even more control over the economy.
The second goal has proved problematic, as the prospect of a tighter government grip scares off private entrepreneurs and investors. With economic goals under threat, Beijing is putting socialist goals on the backburner. However, the government has already more than achieved one of its other goals of the last two years with crackdowns: ensuring that businesses remember the Chinese Communist Party is ultimately in charge.
Social media challenges. Western states have raised concerns that China is effectively acting as a proxy for the Russian government to avoid social media bans, with Chinese diplomats and state media promoting Russian disinformation on Twitter and other channels. Chinese-owned app TikTok has come to play a critical role in the war in Ukraine, both for verification and as a source of potential disinformation.
Given Beijing’s pro-Moscow stance and the West’s tight line on Russian propaganda, that puts the company in a tricky position. TikTok has announced bans on Russian-produced material, especially from state outlets, but these don’t appear to be enforced.
Gaming licenses resume? After nearly a year of no new video game licenses in China, authorities announced permission for 45 new licenses last Friday, though none for gaming giants Tencent or Alibaba—both targets of the government technology crackdown. The Chinese gaming industry has been forced to make major political concessions, from acting as an enforcer of anti-gaming laws for children to removing English words and LGBTQ content.
The video game license freeze wreaked economic havoc on the industry, especially smaller firms, with more than 14,000 firms forced to close.
James Palmer is a deputy editor at Foreign Policy. Twitter: @BeijingPalmer
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