China’s deadly Covid U-turn could bring more economic pain but might also help UK in war on inflation

China is “coming back to life” according to a rambling front-page editorial in The People’s Daily, the official newspaper of the Chinese Communist Party (CCP)

After unprecedented protests over the country’s hated Zero-Covid regime, the state has signalled (if not officially announced) an astonishing U-turn.

Three years of testing and strict lockdowns had largely kept the virus under control but come at huge economic and psychological cost. And now they are being abandoned.

A month ago, millions were locked in their homes and forced to take daily PCR tests. Today officials say public sector workers testing positive for Covid-19 can go to work “as normal”.

The volte-face has caught China’s health system unprepared. Its hospitals are scrambling for beds and medicines. Experts predict China could face more than a million Covid deaths next year.

Economists believe the spread of the disease across through the vast country’s 1.4 billion population could have an upside for Western consumers by bringing down inflation and eventually leading to more reliable supply chains. But the picture in China is already grim.

In CCP speak, there have been few if any new Covid fatalities; the majority of Covid deaths occur in people already weakened by existing illnesses, but China officials won’t count these. In reality, the spectre of death is everywhere, from the overspilling intensive care wards to the hearses queuing this week outside Beijing crematoriums.

China’s chief epidemiologist Wu Zunyou thinks the country is experiencing the first of three expected infection waves, between now and March. Nearly 37 million people in China may have been infected with Covid on a single day this week, Bloomberg News reported on Friday, citing official estimated. Public health officials think that 60 per cent of the country’s population – roughly 10 per cent of the global population – could be infected over the next three months.

Paul Hunter, a professor of Medicine at University of East Anglia, who has followed events in China closely, says China is now paying the price for having locked up people for so long instead of prioritising elderly and vulnerable people with mRNA vaccines, and letting the rest of the populations get on with its lives.

“Once you have got hybrid immunity (both having had vaccine and an infection) you have much more durable protection against severe life-threatening disease,” he says. “Very few people in China have hybrid immunity whereas almost everyone in the UK has”.

Unprepared as it is, China had to ditch Zero Covid because it was suffocating the economy. Draconian lockdowns, such as those in the financial hub of Shanghai in April, also disrupted global supply chains, thus helping to fan inflation in the UK and elsewhere.

Business confidence in China has already fallen to its lowest since 2013, according to a survey by World Economics. The country’s gross domestic product is expected to grow only 3 per cent this fiscal – its worst performance in nearly half a century. This comes amid concerns of a global recession.

David Dollar, a senior fellow at the China Center at the Brookings Institute thinks that November’s economic figures were the death knell for the endless Zero Covid.

“The figures on household consumption were terrible. Exports were down. These and the protests meant the government had to act,” he says.

But he thinks the economic benefits from ditching the policy and unlocking the economy will be largely outweighed in the short term by the damaging effects of an exploding Covid epidemic.

“You’re not going to see any rebound in the next few months,” he says. “But, if – and it’s an unknown – the Chinese government can get the epidemic under control fairly quickly then China might bounce back to 4 per cent growth next year, which would be good news for the world economy – particularly Europe and countries like South Korea.

Niels Graham, an expert on China’s economy at the Atlantic Council think thank, also predicts some benefit for British consumers after the initial surge in Covid cases.

“A short-term manufacturing slowdown in China is not exclusively bad news for western economies. One possible benefit it may provide is to help decrease inflationary pressures in places like the US, EU, and UK, primarily through reduced demand for oil as well as other commodities,” he says.

“In the medium term, the removal of Zero Covid and a stabilisation of the pandemic will be very beneficial through increased predictability of their operations as well as a normalisation of logistics and exports.”

In what is being seen as another potentially positive sign, at last Friday’s (16 December) annual government meeting on economic policy, the CCP seemed to return to its old emphasis on economic growth.

“They’re now coming out saying they want to pay more attention to the private sector and foreign investment. It seems that Xi Jinping could be more pragmatic than most people imagined,” says Dollar.

Steve Tsang, director of the Soas China Institute in London, agrees: “Xi has always had a pragmatic side despite his usually ideological approach. When he is in a corner he backs off, which is what he is doing by allowing the easing of some restrictions that have gravely harmed the economy.

But he warns: “This is a tactical move, not a change in basic thinking or policy. Easing restrictions is easier said than done, as petty bureaucracy is notoriously slow to change and conform to an adjustment of policy from the top.”

And the social and psychological scars from Zero Covid – and the sudden U-turn that followed – could continue to affect China and its ability to act as a motor for the world economy.

Lawrence Summers, the former US Treasury secretary, noted this week of the abrupt policy shift: “It will be fascinating to see what that means for social stability”.

More from Analysis

The end of Zero Covid restrictions, which have forced businesses to close, banned travel and caused misery on a grand scale, may have been met with relief by hundreds of millions of Chinese. But much grief, resentment and anger remains.

Li Gongming, an art historian and a former member of a political advisory group run by the Chinese Communist Party, posted an article on the social media platform WeChat, calling on the government of the southern city of Guangzhou to apologise.

“The first step should probably start with acknowledging the mistake, offering condolences to the deceased and apologising to the public,” he wrote. “It should be followed by holding people accountable and by making the government pay for compensations.”

The article, published on Monday, was soon deleted. Another WeChat article, under the pen name “Banchizi,” urged the public to hold officials accountable for the Zero Covid policy, which it called “a silly farce”. Needless to say, this article disappeared quickly, as well.

Millions of Chinese want an apology. But the CCP doesn’t apologise. To do so would undermine its claim of infallibility.

The People’s Daily editorial – which offered thanks to Xi Jinping for guiding China through the pandemic – is fooling no one, however. Xi was forced to retreat from his flagship Zero Covid policy because the social and economic pain it caused became unbearable.

A return to economic growth and full employment would help soothe the pain. But until the new Covid crisis is tamed, even that might not be possible.

China could help itself – and reduce the risk of generating dangerous new Covid variants – by accepting Pfizer’s updated mRNA vaccine designed to target currently circulating Omicron-related virus variants, which experts believe is more effective than Chinese vaccines. But Beijing has yet to signal it is ready to swallow its pride and begin mass vaccination.