China and the not too distant 'Normal'?

We assess that the Chinese leadership will not likely maintain its COVID zero approach beyond 2022. Current overly restrictive measures will drive away future business development, discourage tourists and business travel, and impede Chinese domestic growth. China remains the only country that continues to adhere to a COVID zero approach to the pandemic.[i] The true reasons behind this strategy are somewhat elusive.

·      The Chinese vaccine’s effectiveness against COVID and the multiple variants is one potential reason[ii][iii]; insufficient medical infrastructure to cope with hospitalization surges is another.[iv]

·      China’s sensitivity to its public image with respect to its handling of the virus likely plays a dominant role in its COVID zero strategy.

It is likely that the Chinese leadership is using its COVID zero strategy as pretense to prepare, test, and adopt new methods of surveillance and control that can be used more broadly within their borders post-lockdown. Introducing these controls under the guise of proposed solutions to the COVID health crisis may be a strategy to dampen international pushback to such measures.

·      Surveillance and virus control strategies implemented since the COVID outbreak include contract tracing apps[v] that monitor movements and enhanced border security measures for goods and people.[vi]

Business leaders with foreign operations in mainland China may reach a point where widespread lockdowns, periodic factory and port closures[vii][viii], burdensome health requirements, and increased government scrutiny become too disruptive to business operations. Chinese government control over decisions that can affect company operations[ix], the potential safety of employees[x][xi][xii], and obscure data requirements[xiii] represent significant deterrents for companies looking to expand and continue operations within the country.

Just as China is sensitive to foreign inquiries into the origins of the virus, it is equally sensitive to falling behind economically or losing face for being the only country that continues to adhere to COVID strategies that are not sustainable and economically damaging. The Chinese government’s COVID zero policy remains in direct competition with the leadership’s goal of reorienting China’s economy toward domestic consumption.[xiv]

The Chinese government will likely recalibrate its official COVID zero posture as more countries lift restrictions and continue to adjust their strategy to one of “living with the virus”, even as spikes in cases are reported. Evidence of faster economic recoveries in western countries and manufacturing departures to adjacent countries may also play a role in China’s reopening timeline. Initial concerns over the transmissibility of Omicron led to reactionary responses from a number of countries in the form of increased restrictions.[xv][xvi] Many countries—primarily in Europe—have lifted or are lifting the same restrictions.[xvii][xviii][xix][xx]

Recent surges in cases of a new sub-variant in Europe[xxi] and concerns about potential sub-variants in the US[xxii], along with increased Omicron cases in South Korea, China, and Hong Kong[xxiii][xxiv][xxv] continue to test governments. Except for China, lockdowns and heavy restrictions appear less likely, despite rising cases.[xxvi][xxvii]

The eventual China reopening will not mirror similar relaxations in western countries or controls seen within China pre-COVID. It will come with substantial strings attached—namely in the form of increased scrutiny of foreign travelers and employees, less privacy concerning health-related data, and more substantial intervention in and control over business activities. Foreign-owned businesses that choose to remain in China or are planning to move or expand operations within the country must prepare their employees and businesses operations for this new normal and assess if increased government control, surveillance, and Chinese favoritism for domestic companies outweigh the benefits of remaining within the country.

 
Sources:

[i] Michelle Fay Cortez, Ashley Thomson, “China, Isolated From the World, Is Now the Last Major Country Still Pursuing a ‘Zero COVID’ Strategy”, Time, October 6, 2021.

[ii] Joe McDonald, Huizhong Wu, “Top Chinese officials admits vaccines have low effectiveness”, AP News, April 10, 2021.

[iii] Jishan Hong, “Three Sinovac Does Fail to Protect Against Omicron in Study”, Bloomberg, December 23, 2021.

[iv] Chad De Guzman, “Don’t Expect China to Ease Its Zero-COVID Policy After the Beijing Olympics”, Time, January 20, 2022.

[v] Nectar Gan, David Culver, “China is fighting the coronavirus with a digital QR code. Here’s how it works”, CNN Business, April 16, 2020.

[vi] Liyan Qi, Keith Zhai, lam Le, “China Fortifies Its Borders With a ‘Southern Great Wall,’ Citing Covid-19”, The Wall Street Journal, February 2, 2022.

[vii] Joe Deaux, Yvonne Yue Li, Ann Koh, “China Port Shutdown Raises Fears of Closures Worldwide”, Bloomberg, August 12, 2021.

[viii] Naoki Matsuda, “China COVID crackdown closes several factories in industrial hub”, Nikkei Asia, December 14, 2021.

[ix] Evelyn Cheng, “China’s power crunch pushes foreign businesses to invest in factories elsewhere”, CNBC, September 29, 2021.

[x] No Author, “China frees Canadians Michael Spavor and Michael Kovrig after huawei boss released”, BBC News, September 25, 2021.

[xi] Kate O’ Keefe, Amanda Viswanatha, “China Warns U.S. It May Detain Americans in Response to Prosecutions of Chinese Scholars”, The Wall Street Journal, October 17, 2020.

[xii] No Author, “Reminder: Security Alert – Heightened Risk of Arbitrary Detention”, U.S. Embassy & Consulates In China, July 24, 2020.

[xiii] Eileen Yu, “China’s personal data protection law kicks in today”, ZDNet, October 31, 2021.

[xiv] Jonathan Cheng, “China’s Economy Starts the Year with a Wobble”, The Wall Street Journal, January 30, 2022.

[xv] Kate Holton, Andy Bruce, “Johnson imposes COVID-19 ‘Plan B’ in England to contain Omicron”, Reuters, December 8, 2021.

[xvi] No Author, “Covid Omicron: European nations reinstate restrictions”, BBC News, December 22, 2021.

[xvii] No Author, “UK Lifts COVID Restrictions, Says Omicron Wave ‘Has Peaked’”, U.S. News & World Report, January 19, 2022.

[xviii] No Author, “Denmark Covid restrictions lifted despite increase in cases”, BBC News, February 2, 2022.

[xix] Niklas Pollard, “Sweden to life pandemic restrictions next week”, Reuters, February 3, 2022.

[xx] Jamey Keaten, “’Take back life’: More nations ease coronavirus restrictions”, AP News, February 2, 2022.

[xxi] Lenny Bernstein, Joel Achenbach, “A covid surge in Western Europe has U.S. bracing for another wave”, The Washington Post, March 16, 2022.

[xxii] Joseph Choi, “Fauci says US unlikely to see surge from new COVID-19 variant”, The Hill, March 20, 2022.

[xxiii] No Author, “South Korea reports record Covid deaths as daily cases surge past 600,000”, The Guardian, March 17, 2022.

[xxiv] Linda Lew, Jeanny Yu, “Hong Kong Signals COVID Shift by Cutting Flight Bans, Quarantine”, Bloomberg, March 21, 2022.

[xxv] Zhuang Pinghui, “Omicron: Shanghai hit by record surge in cases as China stands by zero-Covid approach to outbreaks”, South China Morning Post, March 21, 2022.

[xxvi] Pak Yiu, “Hong Kong to ease restrictions in marked shift from zero-COVID”, Nikkei Asia, March 21, 2022.

[xxvii] Lisa Schnirring, “China’s COVID-19 cases double as other nations eye resurgences”, CIDRAP, March 15, 2022.