‘Bitter pill to swallow’: Omicron is a horrible dilemma for China

Omicron is the end of the road for China’s zero-COVID policy. The Communist Party cannot plausibly suppress a variant that spreads with lightning speed through asymptomatic cases that escape surveillance.

Any such attempt would probably fail. Even if total suppression could be achieved, the social, economic, and strategic costs of trying to do the near impossible would become prohibitive over time. It would no longer be rational.

China’s zero-COVID stance will be severely tested by the Omicron variant. Credit: AP

China has had to deal with scattered cases of the Delta variant for months, usually brought in by flight crews, or leaking across the border from Myanmar, Russia, or Korea.

“They have always been able to catch cases early and crush them. But Omicron looks so transmissible that it might evade their controls. They can’t keep it out completely,” said Mark Williams, chief Asia economist at Capital Economics.

My assumption is that the regime will be overwhelmed by events eventually, forced to follow Singapore, Korea, and Australia in switching to a policy of endemic containment - and relying on the propaganda department and totalitarian instruments of media control to get away with the volte-face.

“They still have a good story to tell. They can say that the rest of the world failed and because of that China will have to live with the virus,” said Mr Williams.

But Beijing will almost certainly dig in its heels first, and this has implications for commodity markets and the strength of global economic growth over the next year. China may remain stuck in an autarkic recession for months to come as it pursues a near-deranged policy of whack-a-mole.

The Communist Party has proclaimed zero-COVID status to be a dazzling vindication of Xi Jinping’s rule, presenting the shambolic response of the West as the defining institutional and civilisational failure of our age.

“Zero-COVID has been their claim to superiority, and to give that up would be a very bitter pill to swallow, so they’ll double down,” said George Magnus from Oxford University’s China Centre.

“There is next to no chance that they will lift the travel ban and open up before the Winter Olympics (in February), and I doubt they’ll do it before the 20th Party Congress late next year,” he said.

The Chinese Centre for Disease Control and Prevention published a report in November warning that infections could top 630,000 a day if China gives up its hard-won gains and switches to a Western policy of herd immunity. It warned of a “colossal outbreak which would put intolerable strain on the medical system”.

The Party actively highlighted this study to stamp out subversive utterances by a handful of Chinese scientists starting to question the rationality of zero-COVID.

But the work was based on epidemiology from the Delta variant. Omicron is another story.

The cost-benefit calculus changes radically if the new variant proves to be as mild as suggested by the early South African hospital data, but at the same time unstoppable with a spread-rate three times higher.

The Tshwane study of Omicron cases released over the weekend by the South African Medical Research Council is almost miraculously hopeful.

Most of the patients were admitted for other complaints and did not even know they had COVID. Few required oxygen, and only one needed intensive care. The average hospital stay was cut to 2.8 days from 8.5 in earlier waves.

But even the best Omicron outcome entails far more deaths than China has been willing to tolerate so far.

The infections would rip through a population with almost no natural immunity from past exposure, reliant on home-grown vaccines that the Chinese authorities would rather not put to the test. This is the horrible dilemma that China now faces.

Roger Garside, a former British diplomat in Beijing and author of books on Deng Xiaoping and Xi Jinping, said last year’s narrative of China as the runaway winner of the pandemic has been inverted.

What China does next has implications for commodity markets and the overall strength of global economic growth over the next year.Credit: Bloomberg

“The picture has turned radically against them. They’re in self-imposed isolation, with no route for the exit,” he said.

Mr Garfield said it epitomises the pitfalls of a totalitarian system. Such regimes look strong but the very tools of power at their disposal end up trapping them in a dysfunctional cul-de-sac.

Australia’s Lowy Institute said this week in its annual report on Asia’s balance of power that China has lost rank over the last year.

This is partly because wolf warrior policies have provoked a harder containment alliance led by the US; it is also because the pandemic has tarnished China’s image and inflicted further structural damage to the Chinese economy.

Almost nobody would have predicted the superpower relegation of Xi Jinping’s China 18 months ago. The pandemic keeps deceiving.

“Vaccine diplomacy is the new currency of geopolitics, and the United States leads the field. The commercial nature of the majority of China’s bilateral vaccine deals, and the fact that China’s vaccines are generally less effective than leading alternatives, appear to have overshadowed its soft power push and failed to translate into substantial goodwill in recipient countries,” it said.

The US economy has roared back and - amazingly - is now on a higher growth trajectory through the mid-2020s than it was before the pandemic, thanks to a leap forward in digital productivity as much as New Deal spending.

China’s recovery has sputtered out. The service sector has not regained its pre-COVID levels, and (true) GDP growth has been hovering near zero for the last two quarters.

It is made worse by a deflating property bubble and by Xi Jinping’s political purge of unruly tech companies, or the broader purge of what he calls “disorderly capital” (i.e. capital that threatens Party hegemony).

This assault on economic pluralism is to drain the lifeblood that has sustained China’s growth miracle since the Deng era.

China is on a flatter economic trajectory than pre-COVID forecasts. Productivity growth has largely converged with US levels but at a lower level of development, a textbook case of the middle income trap.

The last window for China’s great strategic sorpasso may be closing before its demographic crisis arrives in earnest.

“On current trends, Beijing is now less likely to pull ahead of its peer competitor in comprehensive power by the end of the decade. Importantly, this change suggests that there is nothing inevitable about China’s rise in the world. Across the range of feasible outcomes, it appears unlikely China will ever be as dominant as the United States once was,” concluded the Lowy Institute.

This is a startling conclusion. Almost nobody would have predicted the superpower relegation of Xi Jinping’s China 18 months ago. The pandemic keeps deceiving.

Telegraph, London

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