(Bloomberg) -- More than two years into the pandemic most countries are striving to live alongside Covid, accepting the virus as part of everyday life. China, where the pathogen first emerged, exists in an alternate reality, wedded to a zero-tolerance strategy that’s growing harder to maintain.
Despite firmly closed borders and a vaccination rate near 90%, the highly transmissible omicron variant has been reported in seven out of 31 provinces and all of China’s biggest cities. Port disruptions and citywide shutdowns are increasingly common, and on Monday, the government signaled it’s bracing for more: The central bank cut its key interest rate after the economy posted its weakest quarter since the beginning of the pandemic.
The human costs are rising, too. In the city of Xi’an, at least two people died and two women miscarried, barred from medical treatment by zealous enforcement of Covid lockdown protocols that began just before Christmas. The official tally of daily infections there, on the other hand, remains in the dozens, with zero deaths.
“I understand they take these measures to keep everybody safe,” said He Kun, a 55-year-old general manager of an electric vehicle company just outside Xi'an. “If it takes a month or so I think that's OK. But if it lasts half a year, then everyone will lose their job and companies will shut down.”
In the most literal sense, China hasn’t been Covid Zero for months, and with every new mutation, the stakes rise for President Xi Jinping and the rest of the world. On a list of the top global political risks in 2022, the Eurasia Group put the failure of China’s pandemic strategy at No. 1.
The country won’t be able to fully keep out omicron and subsequent mutations, the report predicted, requiring more lockdowns and further disruption of the supply chain: “Low growth, high inflation, and growing inequality will exacerbate public frustration with governments and stoke political instability to a degree we haven’t seen since the 1990s,” the report said.
The spread of the delta and omicron variants make that conflagration increasingly likely. Goldman Sachs and Nomura have predicted China will stay the course through late 2022 — after Xi is expected to secure an unprecedented third term — and possibly into spring 2023.
At such a politically sensitive moment, Xi hasn’t wavered from a strategy that, by Beijing’s accounting, has worked. Cases have been at or near zero once the initial outbreak in Wuhan ended. The delta variant breached China’s border controls in May and flare-ups followed, but according to official reports, daily domestic cases have mostly stayed under 200. In the past two years, Chinese authorities have reported fewer than 5,000 Covid deaths, compared with 831,000 fatalities in the U.S., a country one-quarter the size.
As a result, China’s population has almost none of the natural immunity that previous waves of infection have conferred on survivors elsewhere, making Chinese people reliant entirely on their vaccines for protection. The omicron variant may be relatively mild, but it’s also much more transmissible. A small number of cases could trigger an outbreak that sets the whole country’s immune system on fire.
Meanwhile, the government has criticized policymakers elsewhere, saying they’ve prioritized normality over human lives. A recent editorial in the state-backed China Daily slammed the countries that have “succumbed to the notion of the survival of the fittest to justify their lack of fortitude and failures of governance.”
“China holds firm to the belief that each life counts,” it concluded. “It will do all it can to ensure none of its people are left to fend for themselves and no one is left behind in the fight against the virus.”
Through the first 18 months of the pandemic, China’s Covid Zero measures let most people return to their pre-pandemic lives and, while the rest of the world suffered shortages and job losses, China pulled off a swift, enviable recovery. Even with the occasional abrupt and unpredictable factory shutdown, the nation’s companies set a record for exports in the first 10 months of 2021, with shipments up 31% by value compared with the same period a year earlier.
Keeping the country Covid-free got harder after the delta variant cropped up in May. On the border with virus-ravaged Myanmar, the town of Ruili went so far as to install spiked iron wire atop its border fence to deter unsanctioned border crossers who might be carrying coronavirus. Still, Covid cases still triggered four lockdowns in seven months, and the curbs forced many small businesses to close. Residents lived with frequent testing, no exceptions: one of the city’s youngest residents, a two-year-old, was swabbed for Covid as many as 74 times, local media reported.
Ruili boasted a vaccination rate around 97% and reported zero Covid deaths in 2021. “Every lockdown is a severe emotional and material loss,” Dai Rongli, the town’s former deputy mayor and now a senior executive at a state-owned rail construction firm, wrote on his social media account. “Every battle against Covid adds a layer of unhappiness.”
Over the summer, periodic shutdowns and transit delays mostly tapped into citizens’ well-developed sense of patriotic duty. By mid-October, the country’s streaks of zero-case days were gone, and the efforts to stop the virus’ spread turned increasingly hardcore. On Halloween, Shanghai Disneyland detained 34,000 guests for mass testing after a park visitor tested positive. A small county in eastern China responded to a single case by turning its traffic lights red, permanently, to keep people from moving around.
When a Beijing teacher and student tested positive in November, the government ordered snap lockdowns for hundreds of students and staff. Anxious parents waited outside the schools through the night. Some eventually brought pillows and blankets to join their kids in quarantine.
In December, the delta variant hit Xi’an, China’s 10th biggest city, and the government response triggered new wrath. Authorities banned people from shopping for groceries, then failed to deliver food to residents. Some started trading with neighbors, swapping cigarettes for instant noodles and other shelf-stable foods. One tearful woman posted a video online, pleading with local Covid containment staff to let her leave her apartment to buy period supplies.
Two pregnant women miscarried after hospitals refused to let them in, citing Covid containment protocols. A man in his 60s died after suffering a heart attack. He was turned away by several hospitals because he hadn’t taken a Covid test. By the time he took one and it came back negative, it was too late.
All that, even before omicron emerged. The new variant cropped up first in Tianjin, next to Beijing, then in Anyang in Central China, then in the northeastern port city of Dalian. The Tianjin local government ordered citywide Covid testing, closing companies and government offices for half a day. Toyota and Volkswagen halted production at their factories in the city to accommodate mandatory testing campaigns. Airbus, which has a major aircraft assembly hub in the city, also warned of omicron's impact on its production and demand in China.
Now omicron cases have been reported in Beijing, Shanghai and Shenzhen. The Lunar New Year holidays, traditionally China’s biggest travel season, are less than two weeks away, and local governments have warned residents that if they leave, Covid containment measures might block their return. Transportation services are suspended in places with confirmed cases. Testing is mandated, creating long lines in in bitter winter weather. Workers tasked with enforcing the curbs and testing are also under increasing strain; some have reported passing out from stress and long hours.
Part of China’s problem lies with its vaccines.
Initially, China led the world in the race for a Covid vaccine. By early 2020, pharmaceutical companies Sinovac and Sinopharm were testing shots based on small, inactivated doses of the virus, and China was the first to approved them for front-line workers.
Later that year, China started to ship hundreds of millions of doses around the world, making its shots the mainstay of inoculation programs in Indonesia, Chile, Brazil, the U.A.E. and elsewhere. Efficacy rates for Sinovac’s CoronaVac in particular ranged wildly in different trial sites, but the inactivated vaccines offered decent protection against severe disease and death. Crucially, they were widely available to the developing world at a time when the U.S. and European countries had cornered the market on the newer, more effective mRNA vaccines.
Through the first six months of 2021, Sinovac recorded $11 billion in revenue, a whopping 161% increase over the same period a year earlier. It also warned that the future isn’t likely to be so rosy, nodding to the competition from more effective foreign shots that use newer technologies.
The emergence of new variants raises fresh questions as to how well China’s vaccines are holding up, and so far, there’s no definitive answer. Research from Hong Kong University concluded even three doses of Sinovac's inactivated shot produced insufficient antibodies to prevent infection against the new variant. But a preliminary study from Chile, where more than half the vaccines come from China, found that Sinovac’s jab does trigger a cellular immune response, which indicates that the shot should still shield against severe disease caused by omicron.
“The scientific and clinical evidence undoubtedly makes CoronaVac an excellent candidate to be applied as a second booster dose,” said Alexis Kalergis, a professor at the Universidad Católica de Chile and director of the Millennium Institute on Immunology and Immunotherapy. “Even more so when worldwide there has been an increase in cases due to the omicron variant, and we must maintain a high immune response to be protected.”
As countries like Australia and Singapore have learned, the transition away from Covid Zero is rough. There’s no clear path for China. By one official estimate, the strategy has avoided 1 million deaths and 50 million illnesses. While the new variant has been relatively mild in the countries where it’s spread, those are also places with some preexisting immunity from infection or inoculation, and even then, the virus has still spread quickly and widely enough to clog hospitals.
Liang Wannian, the senior official who’s led the national pandemic response since 2020, said stronger efforts are needed to fight omicron, but others would like to consider the end-game. China should learn from how others are opening up and consider changing tacks when the cost of Covid Zero outweigh the benefits, Zeng Guang, the former chief epidemiologist at the Chinese Center for Disease Control and Prevention said in an interview with domestic media in August. Hu Xijin, an influential commentator who recently retired from his editor-in-chief post at the state-backed Global Times, also pointed out that Chinese people have legitimate concerns about the policies that aren’t being addressed, warning that support for measures will wear thin.
Pharmaceutically, China doesn’t have many immediate options. It could offer third or even fourth doses of the inactivated vaccines. The mRNA vaccines from Pfizer and BioNTech have also cleared regulatory review in China and could, in theory, be offered as boosters. But politically, making the Western vaccines available now would undermine China’s narrative of self-reliance and the superiority of homegrown technology. The Communist Party would also want reciprocity – if China approves a foreign vaccine, it would want the same treatment for its shots.
The government is more likely to wait for a new inactivated vaccine that targets omicron specifically, similar to how the flu vaccine is tailored each year. “Get it approved fast,” said Jin Dong-Yan, a virologist at Hong Kong University. “This is a very mature vaccine platform – even if there are challenges, they can be addressed.”
Longer term, China has an mRNA vaccine in late-stage trials overseas, and a separate domestic study is looking at the additional protection it might offer as a booster. Sinopharm also has a new vaccine based on recombinant protein technology that’s been approved in the U.A.E. A dose of that shot adds protection against omicron for people who have had two doses of inactivated vaccines, the company says.
China’s latest economic results and the reaction by the central bank show how much strain the government is under. Beijing’s longer-term goals call for stronger domestic consumption, less dependence on overseas demand. Covid Zero has given it the opposite. Even if domestic demand weren’t flagging, the strategy increases China’s dependence on exports. It’s bad timing – the rest of the world has begun to spend money on services again – and it makes the country more vulnerable to tariffs and trade policy, not less.
Frustration is rising among Chinese citizens, but for now, there’s little they can do but wait. With worsening outbreaks, the consequences for rule-breakers have grown harsher. Last week, three people were sentenced to four-plus years in prison for violations that, the government said, led to a Covid outbreak.
“I just keep watching what's going and following the rules,” said He Kun, the automaker in Xi’an. The lockdown measures there meant he couldn’t get critical parts — truck drivers didn’t want to get caught making deliveries in an outbreak zone — and his company missed its production and sales targets in December and January. “If you operate in China then you have to obey the laws of this country.”
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