China’s widespread Covid-19 crackdown is a worrying sign

China is targeting certain sectors as it tries to address the economic fallout from its Covid-19 outbreaks – with worrying consequences.

When the global financial crisis arrived on Australia’s shores in 2008, it appeared likely that Australia would follow much of the rest of the world into recession and that our property market could follow that of the United States, and implode.

But against all the odds, Australia was one of the few advanced nations to avoid a recession and a housing price crash.

While economists still debate exactly how this was achieved to this day, what isn’t in doubt is the enormous contribution made to Australia’s economic success by Chinese government stimulus, which grew Australian commodity exports.

Since then Australia has become more reliant on China with each passing year. Australian exports to China reached a concerning 50 per cent of the entire national total at one point last year.

As a result, it is now a common idiom among economists that, “if China sneezes, the Australian economy catches a cold” – no pun intended.

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Australia’s prosperity has long been tied up with China’s. Picture: Wang Zhao/AFP

The two Chinas

When lockdowns ended in China in April 2020, two very different versions of the country emerged.

In one version, the economy boomed as construction and manufacturing reached new heights thanks to global and domestic stimulus flowing through the Chinese economy.

In the other, small businesses and less affluent households struggled to come to grips with the financial hangover resulting from some of the most challenging lockdown conditions in the world.

With large parts of China now facing new Covid-19 restrictions or lockdowns, Chinese households and small businesses in affected areas are once again carrying a heavy burden.

Unlike Australia or many other Western nations, Chinese government stimulus has been heavily focused on the broader economy rather than on households or small businesses.

During the global financial crisis this was done to great effect, with China enjoying explosive economic growth for years following the deployment of large construction-driven stimulus programs.

But this time, the benefits of strong headline economic growth are arguably not flowing through to less affluent Chinese households and small business owners.

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A worker at the Ikea restaurant in Wuhan, Hubei Province, China. Picture: Getty Images

The Communist Party’s strategy

For years, rapid economic growth papered over the growing inequities of Chinese society, as living standards largely kept up with the breakneck pace of the expansion of the economy.

But now as the benefits of Chinese economic growth flow increasingly unevenly towards the wealthier demographics, the CCP is increasingly looking to address the issues facing everyday Chinese.

Or at the very least be seen as attempting to address these and other issues.

The CCP’s strategy so far could be described as akin to a bull in a china shop.

Numerous different sectors of society and the economy have been targeted, in a shake-up that has left few aspects of life in China untouched.

For example, Beijing outlawed for-profit school tutoring, ostensibly to improve school-life balance for families. While that is certainly part of the explanation, another key factor was the drain that the cost of tutoring imposes on household budgets, particularly those of middle and lower class households.

In Beijing, the push to reduce the burden of expensive education on Chinese households has been taken even further.

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A child being tested for Covid-19 in Lianyungang in China’s eastern Jiangsu province. Picture: STR/AFP

Over the past three months authorities have effectively nationalised at least 13 Chinese private for-profit schools, without providing any compensation to the owners.

At a national level, President Xi Jinping is pushing for a widespread overhaul of the Chinese economy, with the ultimate goal of concentrating even greater levels of control within the halls of the Chinese Communist Party.

Last week the CCP’s Central Committee and State Council jointly released a policy document that would expand government legislation and enhance regulation, to “meet people’s ever-growing demands for a good life.”

In the words of Bruce Pang, the head of research at investment bank China Renaissance:

“Policymakers would like to address and resolve social issues effectively and efficiently to ensure social fairness, justice, equality and national safety as well as preventing risks.”

As the carefully papered over cracks in Chinese society continue to be exposed, the President is striking an increasingly aggressive tone on issues of inequality and the distribution of wealth.

In a meeting earlier this week, Xi emphasised the classic communist ideals of moderate wealth for all and promoting “common prosperity”.

According to Chinese state media, participants in the meeting called for a “reasonable adjustment of excessive incomes and encouraging high-income groups and businesses to return more to society”.

Lenovo factory employees eating at tables with plastic partitions in Wuhan, China’s central Hubei province. Picture: STR/AFP

While these types of policies have always been theoretically at the core of the CCP’s ideology, in reality large corporate interests and the wealthy have taken an increasingly large slice of the pie in recent decades.

Now as lockdowns continue to disproportionately impact small businesses and the less affluent, these ideals have arguably been transformed from a ‘would be nice’, to something approaching a necessity.

If the Chinese economy continues on its current path of slow deterioration, the aggressiveness with which the CCP pursues these goals and further crackdowns on industry will likely intensify.

Ultimately, the Chinese Communist Party is very aware of its responsibility to the Chinese people and exactly how precarious their position may become in time, if the issues facing them are not adequately addressed.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator