Shanghai, China - May 12 2022: Garbage men during Shanghai's 'Silent Period' of it's now 7 week long COVID-19 lockdown as an effort to reach 'societal zero' against the omicron outbreak

Is ‘Zero-COVID’ Crippling Xi Jinping’s Domestic Agenda? Five Unintended Consequences

Austin Jordan reviews Yanzhong Huang’s analysis of China’s challenges in sustaining its COVID-response strategy.

More than two years since the launch of Zero-COVID, the Chinese government’s pandemic response has achieved undeniable successes. Excess deaths have been kept at a remarkably low level. Since the beginning of the outbreak, China has reported a total of approximately 1 million confirmed cases–only 0.2% of the global case count, and fewer than 5,300 deaths, compared to 1.05 million in the United States. These results “essentially bolstered the notion among the Chinese authorities and also the Chinese public that China is rising, the West is descending,” says Yanzhong Huang, Senior Fellow for Global Health at the Council on Foreign Relations and Director at Center for Global Health Studies at Seton Hall University. “And that also enabled them to claim the superiority of the Chinese political system.”

But as the pandemic continues to pose risks, and with little indication of a policy change before the upcoming 20th Party Congress, the Party will have to grapple with the unintended consequences of its approach. According to Huang, who spoke recently at a Critical Issues Confronting China talk hosted by the Fairbank Center for Chinese Studies, failure to do so threatens to stall Xi Jinping’s domestic agenda, and perhaps more concerningly for President Xi, may foment social instability and rifts amongst the leadership. In his talk, Huang noted five major challenges and their implications.

The decline in the economy is deeper than expected.

The pandemic has suppressed domestic demand, disrupted supply chains, and weakened macroeconomic forecasts globally. The Chinese economy has not been an exception. The Bank of China recently projected GDP growth of just 3.5%, far short of the 5.5% target set by the leadership earlier this year. According to Zheng Yuhuang, a professor at Tsinghua University, more than 460,000 companies have gone out of business in the first half of this year, and 3.1 million private enterprises have been at least temporarily shuttered. Some 20% of the work force under the age of 25 is unemployed, reducing the disposable income of the population at large.

The “export engine is running out of steam,” Huang noted, with external demand for goods from China dropping precipitously. Taken together, dimming job prospects, reduced consumption, and declining demand for exports raise concern for the future of the Chinese economy, and the continuation of Zero-COVID is likely to exacerbate these issues.

Healthcare reform has suffered major setbacks.

The government’s pandemic response has severely hindered progress on accessibility and affordability in the Chinese healthcare system. Perhaps most alarming, the policy threatens coverage of people’s non-COVID medical needs by funneling large portions of the national health insurance fund into Zero-COVID efforts. Debt-ridden local governments have been found to have misappropriated this funding to finance expenses under Zero-COVID (principally for mass-PCR testing). Huang points out that “Chinese social media has shared stories about how a shortage of money in the health insurance fund is leading to high out of pocket [expenses] and the removal of certain drugs from the reimbursement drug list by some local governments.”

Zero-COVID has also reinforced the dominance of the public sector in providing healthcare by edging out private providers. The policy requires private hospitals to comply with costly measures, such as sending patients with COVID-like symptoms to public hospitals, resulting in the bankruptcy of more than 2000 private hospitals (more than 8% of all such private institutions). Broadly, Zero-COVID has siphoned resources away from routine healthcare and crowded out private options, resulting in higher costs and less accessibility for Chinese patients.

There is a huge ‘immunity deficit’ in the population.

According to Huang, the success of China’s strategy may well prove to be a double-edged sword. To date, less than 1% of the Chinese population has acquired a natural immunity through prior infection (by comparison, two-thirds of India’s population had been exposed to the virus and carried natural antibiotics by July 2021). Such success in preventing the transmission of COVID has “generated a false sense of security among the Chinese public,” which has led to a lower rate of vaccination amongst the elderly. Per the Chinese health authorities, as of August 10, the two-dose vaccination rate and subsequent booster rate for the elderly was 86% and 68% respectively (these numbers are 92% and 71% for the United States). Ultimately, the low vaccination rate compounded with the reduced efficacy of the Chinese vaccine “has produced a huge immunity gap between China and the rest of the world that leaves the country vulnerable to a perceived COVID-19 tsunami.”

This immunity gap has another, more pernicious effect: so long as this immunity gap exists, China will find it justified to sustain its strategy, making it more and more difficult to change course.

There has been a steep decline in both births and marriages.

The pandemic has worsened the mounting demographic issues facing the country. First, the depressed economy and reduced disposable income (especially among younger people) has precipitated a sharp drop-off in marriages. In the first quarter of 2020, the number of marriage registrations fell by 45% from the prior year. Second, measures “such as extended lockdowns have significantly increased the burden of childcare and housework.” As a result, many women have shelved their childbearing intentions: the number of births in November and December of 2020 were just 55% of their levels from five years earlier. These pressures take place amidst an already existing trend of population decline. Zero-COVID has magnified the serious demographic problems—an increasingly aging population—ailing the country.

Zero-COVID has exacerbated mental health issues in China.

While mental health illnesses have increased worldwide as a result of the pandemic, China’s “strict and prolonged control measures…including extensive and mandatory quarantines, school closures, and stay home orders imposed on millions of people has made the situation even worse,” states Huang. During the first month of the lockdown in Shanghai, Baidu searches for 心理咨询 (xinli zixun, psychological counseling) increased by 253%. The disruption of normal routines, increased economic pressures, reduced access to healthcare facilities, and lowered levels of physical activity across the population are likely to increase the demand for psychological services and “exacerbate the already fragile mental health status in the country.”

What do these unintended developments ultimately mean for the Party? Huang worries about a “growing capacity gap.” State resources, both financial and bureaucratic, are becoming stretched extremely thin. According to Huang, all provincial-level units (except for Shanghai) posted deficits in the first seven months of this year, and with the fiscal burden of Zero-COVID estimated to exceed 700 billion RMB ($100 billion USD), these fiscal pressures are unlikely to abate (indeed, the WHO has also suggested that the strategy is not sustainable). The unintended developments are closely intertwined and will require great resources to manage. Huang warns, “In the absence of any significant change in the Zero-COVID policy, the economic slowdown may evolve into an economic crisis, which could in turn translate into a legitimacy crisis,” a worst-case scenario for the leadership. It remains to be seen whether policy adjustments will be made in the wake of the 20th Party Congress.