China’s zero-COVID policy tests Xi’s iron grip and threatens the global economy

Despite concerns over the economic impact, China seems determined to stick by its lockdown strategy even as other “zero-COVID” countries such as New Zealand throw in the towel and some, including the UK, “learn to live” with the new variant. Studies found China’s Sinovac vaccine is much less effective against Omicron than rival jabs, though there are hopes the shot will still hold up against severe illness.

Omicron ramps up the risk of stop-start restrictions and global spillover effects if ports and factories shut again.

“The economic impact of these lockdowns do have some impact but at the moment, these are manageable. If the infections were to reach US levels, then that truly would be an economic and human catastrophe not just for China but the rest of the world,” says Prof Kerry Brown, director of King’s College London’s Lau China Institute.

But even if pressure from a stalling economy mounts, experts believe there is little chance of a shift in strategy, particularly before Xi’s presidential future is sealed.

“I don’t think the zero-COVID strategy is likely to change before the party congress at the end of this year, which I think actually means in practice probably spring of 2023,” says Professor Rana Mitter, director of the University of Oxford’s China Centre.

Mitter argues there have been recent hints by state-run media that could suggest “there is unhappiness about the current balance of factions in the top leadership”. He says there is “almost no doubt” Xi will be handed another term but adds there are “big flashing warning lights” for Beijing to deal with, including the Evergrande crisis, climate change and deteriorating job prospects for university graduates.

The zero-COVID strategy initially helped China escape major economic damage by stemming infection rates enough to reopen, making it the only major economy to grow in 2020. But the ultra-transmissible Omicron ramps up the risk of stop-start restrictions and global spillover effects if ports and factories shut again.

Beijing has already moved to shore up its economy with the central bank cutting its key lending rate and banks’ required buffers of money. Officials have vowed to unveil more support as the economy stuttered even before the growing threat of Omicron.

Economists warn this could stoke global inflation. Supply bottlenecks boosting prices have been worsened by COVID outbreaks causing factory shutdowns and congestion at ports from Los Angeles to China. Recent cases have stoked fears of a repeat.

Loading

“If that’s shutting down ports, or important factories for the global supply chain, there is clearly a risk there’s further supply shocks and shocks to global inflation,” says Jonathan Ashworth at Fathom Consulting.

As China’s zero-COVID strategy threatens to spark tension over Xi’s grip and slam the brakes on 2022 growth, the wider global economy will also suffer.

Telegraph, London

Get a note directly from our foreign correspondents on what’s making headlines around the world. Sign up for the weekly What in the World newsletter here.