China’s COVID-19 Stagnation Has No End in Sight

Welcome to Foreign Policy’s China Brief.

The highlights this week: Another wave of COVID-19 lockdowns highlights how restrictions are taking a toll nationwide, the Chinese Communist Party readies for its National Congress in October, and China suffers from the hottest August since record-keeping began.

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COVID-19 lockdowns are spreading across China as new outbreaks test the country’s long-standing zero-COVID policy. The outbreaks are small—compared to the rest of the world—and likely to be contained. But with around 313 million people under lockdown, including in major cities such as Chengdu and Shenzhen, China’s economic prospects look bleak. Even a small but deadly earthquake near Chengdu did nothing to shift COVID-19 policy in the region.

The odds of the political leadership lifting the zero-COVID policy this year remain slim. The directive would have to come straight from Chinese President Xi Jinping, and a major outbreak after relaxing restrictions would cost many officials their careers. The COVID-19 control apparatus has also taken on a life of its own, employing millions of people. Dismantling it will be hard—but that’s just one part of a set of policies that have trapped China in economic and political stagnation.

Removing the zero-COVID policy would merely create a new problem. China probably can’t leapfrog straight to the so-called post-COVID-19 phase of most of the developed world, where vaccinations, waves of previous infection, public weariness with restrictions, and better medical care have transformed the virus into something seen as a manageable problem rather than a permanent crisis. Instead, lifting the policy could result in a wave of cases that overwhelms the health care system.

Chinese vaccines are adequate but weaker than mRNA vaccines, such as those produced by Moderna and Pfizer—which themselves are in a race against new variants. The Chinese public lacks the likely immunities provided by earlier waves, since the country hasn’t experienced a severe outbreak since the one in Wuhan. Chinese officials must be looking nervously at what happened in Hong Kong in March, when COVID-19 breached the city’s containment walls and it recorded the highest per capita death rate in the world. As everywhere, older adults—including much of the Chinese Communist Party’s leadership, where retired politicians still wield clout—would be particularly at risk.

The seemingly endless cycle of lockdown has given this year a feeling of déjà vu within China. Even when cities are released from restrictions, there is no burst of freedom or spending; instead, people begin hunkering down in expectation of the next outbreak. That fear has helped suppress domestic demand. Economic aid is largely targeted at businesses, not individuals. COVID-19 fears will likely undermine even domestic travel during the upcoming Mid-Autumn Festival and hamper the weeklong vacation around China’s National Day at the start of October.

Meanwhile, the burden of sustaining an expensive system of control weighs heavily on local governments, not just financially but also because it diverts millions of government personnel into pandemic-related work, such as testing and enforcing lockdowns. Fear of getting trapped away from home has hampered trucking-dependent supply chains and migrant labor—and reduced the remittances those migrants would usually send back to the countryside.

But anxiety around COVID-19 restrictions is just one factor potentially pushing China into a long period of stagnation. After a decade of political purges and a concerted campaign against civil society and any kind of grassroots representation, officials at the local level can’t afford to take any risks. It’s not even safe to do nothing: So-called anti-formalism campaigns require that officials constantly demonstrate action that takes the party line. That means the safest thing to do is often to carry out more repression, which dampens the possibility of change.

Underpinning all of this is that local governments are running out of money. The Chinese government faces a nearly $1 trillion funding gap, with most of the impact falling on local jurisdictions. Public revenue is down 9.2 percent year on year. Local governments used to make up for the gaps by selling land, but the property crisis means that developers are no longer eager to buy.

None of this will lead to economic collapse, but it is likely to produce painful austerity, improvisations, and burdens that fall on the public with little hope of real change in sight.

Prepping for the CCP Congress. The 20th National Congress of the Chinese Communist Party (CCP), at which Xi’s third term as party secretary and president is almost certain to be confirmed, will begin on Oct. 16. Oddly, some Western media have used terms such as “win” or “election” to describe the move—a strange choice to describe a process that is mostly determined by political struggles far ahead of time and is only somewhat contained by the formal processes of CCP institutions.

The dates of major events are usually only announced a month or two in advance in China, both for security reasons and out of a reluctance to share information beyond the top political leadership. Some analysts have speculated that the country’s economic downturn and the continued stress of its zero-COVID policy might have weakened Xi’s position, but there is little evidence of that. State media continues to fire off Xi propaganda, with the evening news devoting whole segments to applause for his speeches and appearances.

The composition of the rest of the CCP leadership is less certain—and perhaps not yet entirely secured. Under Xi, becoming a rising political star is a good way to end up in the leader’s sights, as former official Sun Zhengcai found out in 2017.

Long, hot summer. China has just finished its hottest August since record-keeping began in 1961, with temperatures topping averages by 1.2 degrees Celsius. The record-breaking heat wave lasted for more than 70 days, scorching the country’s east and southwest and drying up rivers and lakes. State media has largely downplayed the heat wave and emphasized the heroism of volunteers in fighting wildfires in Sichuan and Chongqing. (Heat waves usually result in a rash of fatalities among older adults, but there is little coverage of that.)

Along with the heat wave, a severe drought has damaged crops across China’s south, which is likely to produce a spike in fresh produce prices rather than a shortage of staple crops; an ample global rice harvest and China’s considerable grain stockpiles will probably make up for the losses.

Solomon Islands shift. The Solomon Islands, where China signed a security pact this year, blocked a U.S. ship from docking for a routine refueling stop last week and announced a moratorium on all foreign naval visits. Under Prime Minister Manasseh Sogavare, the Solomon Islands has increasingly tilted toward China; Sogavare recently lambasted Australia for offering financial support to hold elections. (Australia has long-standing security ties with the Solomon Islands, including a critical mission to restore security at the government’s request in 2003.)

The Solomon Islands’ political opposition fears that a Chinese presence could help effectively crush resistance to Sogavare, who is attempting to delay elections until December 2023 in what his opponents call an attempted power grab. Such a move could set a dangerous precedent for Chinese authoritarian support in small countries, along the lines of its long-term backing for Cambodian Prime Minister Hun Sen’s crackdown on democracy.

Property falters, yuan slides. The Chinese property market continues to slide, with major firms reporting 90 percent or more decreases in profit year on year and prices likely to fall in 2022 after decades of dramatic rises. Local governments have applied pressure on firms to avoid cutting prices for new housing, worried about sparking a crisis of confidence. But it may be too late: With property sales set to fall by somewhere between one-quarter and one-third this year, homeowners are getting worried—and hoping for a massive bailout from the central government.

From recent conversations with upper-middle-class Chinese friends, I get the sense that days of property as the default investment are over. But people are unsure where else to put their money. Foreign holdings are desirable but increasingly difficult thanks to capital controls under Xi and the weakening yuan, which looks set to fall past the mark of 7 to the dollar soon.

U.S. adds tech restraints. U.S. President Joe Biden has signaled there will be no end to the U.S.-China trade and technology wars anytime soon. His administration has not only retained Trump-era tariffs for the foreseeable future but has also used executive orders to clamp down on Chinese technology, imposing new licensing restrictions and banning firms that benefitted from the new CHIPS and Science Act from setting up Chinese factories for a decade.

TikTok, which is owned by Chinese parent company ByteDance, is also getting a lot of fresh negative attention from critics and lawmakers in the United States. As with many social media apps, privacy concerns about TikTok are real, but the new round of criticism seems to have as much to do with the platform’s dominance among teens as any real threat from its Chinese ownership.