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Why China is getting it all wrong?

by tavaga

2022 is an important year for China. For President Xi Jinping this is the year where everything has to go as planned as he seeks a third term in September this year. Well, nothing is kind of working in his favour ever since the new year began and that is maybe why he needs to tackle the current pandemic problem early and quickly. Any loosening there could prove very risky for his political ambitions.
It is believed that the Chinese government plans for decades, carefully maneuvering every move to lead the long economic game. But what is happening in Shanghai is far from any sign of intelligence, let alone strategic.

Lockdown in Shanghai which is an important center for the global supply chain completes one month of lockdown today and may get extended by at least another month or even more because the pandemic situation has shown no signs of easing out. China has officially reported 770714 cases as of 25th April according to the New York Times, which means at least 1 in every 1814 citizens has been infected.

While the rest of the world has unmasked and reopened, 25 million people in Shanghai are in a citywide lockdown, stuck in their apartments and facing food and medical shortages. In short, they are trapped in China’s zero covid policy with no exit in sight in the near term.

Is this rigid policy, to say the very least, an underlying strategic decision to overpower the pandemic as they did two years back or another of Mr. Xi’s obsession over control?

Cumulative confirmed COVID-19 cases
Source : John Hopkins university, Tavaga Research

What is the Zero COVID Policy?

China had a stronger-than-expected start to 2022 with growth in consumer spending, investment, and industrial output surpassing expectations. The outlook however took a dramatic U-turn as China is hit by yet another covid outbreak, worse than the previous waves, with Shanghai in a deep lockdown for mass testing.

The zero covid policy being followed by China aims to control and suppress the spread of the virus by methods like mass-testing, contact tracing, border quarantines, and lockdowns as soon as cases are detected. The end goal is to bring the number of infections to zero and resume regular activities. China has literally closed itself from the rest of the world and people are banned from stepping a foot out if even a single case was recorded.

Questions remain unanswered

This weird policy has raised a lot of eyeballs. The official death toll in Shanghai is still around 100-150. Most of the countries bigger or smaller than Shanghai have gone without any severe lockdown even after witnessing casualties many times worse than this! If only we were to believe what China says! There is a high probability that the actual number of deaths may be far higher than reported.
One thing which is different this time from two years back is the general Chinese masses questioning the governance. This time around a lot of concerns has been raised regarding China’s rigid way of dealing with the virus. Despite the censorship, stories of children being separated from their parents, pets being starved and people dying due to lack of medical aid have reached the world.
The authorities left no time for the citizens to prepare for a lockdown with extremely poor conditions in the testing centers. 
Vaccination is low among the elderly which were a priority for most other nations. China has also refused to import vaccines and no booster shots have been provided, although China helped its neighbours with vaccines, it has done little to improve immunity in its own country.

China paying a heavy price….and so is everyone else

Shanghai, China’s commercial capital with the world’s 3rd biggest stock exchange, has already been battling economic hurdles since the government launched a crackdown on technology companies for compliance defaults. The Evergrande property scandal had also caused foreign investors pulling out due to economic slowdown concerns. The pandemic however is proving to be the worst of its setbacks.
The unemployment rate across 31 major Chinese cities has risen from 5.4% in February to 6% in March, the highest rise since 2018. Experts have warned that if this lockdown persists, it would bring fore another round of supply chain concerns for the auto sector.
506 vessels wait to get docked at China’s ports and one of five container ships in the world is stuck in this jam. Countries dependent on ports of the country are stuck and are facing shortages, especially in the electrical goods and apparel industry.
Recent lockdowns in key manufacturing and trade hubs in China will cause a shortage of everything from consumer goods, home appliances, apparel, and all the products made in and around Shanghai or transiting through its port.
This will add to the already disturbing inflationary pressure worldwide.

Is President Xi listening? Not really! Far from relaxing, he has intensified the implementation of his Zero-Covid policy, with partial lockdown in half of the Chinese cities, besides the total closure of Shanghai.

Why is this policy holding on?

In the past, China has been the fastest when it came to recovering from the pandemic waves with its fast and agile response and execution of such policies. China’s cases since March 2020 have just been a fraction of those recorded elsewhere. This strategy has worked for the country and is still being implemented to control the virus. The economic cost of this move is however going to be large not just for China but for the world at large.

The policy being used by the country’s government shows that it does not mind economic losses and convenient twisting of facts as long as it comes to power.

Final thoughts

The current surge in covid-19 cases in China appears to mirror the outbreak 2 years back. The last 2 years have taught the world to prepare to function around China and reduce their supply chains dependencies. It will thus be very crucial to see how things pan out in 2022. We are hoping that the impact of the closure of this “factory of the world” may not be as catastrophic as in 2020.
China has given its verdict – political priorities to rule over economic growth. We have to be prepared with ours.

Disclaimer: This write up is solely for educational purposes. This in no way should be construed as a buy/sell recommendation. Please consult your investment advisor before investing.

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