Xi Jinping is betting it all on zero Covid
The Chinese Communist Party leader is evoking Mao’s legacy and runs the risk of repeating his mistakes as he mobilises forces to eradicate the virus while embracing policy that makes no macroeconomic sense.
China’s Leninist political system is very good at mass mobilisation but very bad at stopping mass mobilisation once it has begun.
Mao Zedong proved this most destructively with the Great Leap Forward in 1958. Today Xi Jinping’s bold embrace of the zero-Covid policy, in the face of an increasingly transmissible Omicron variant, is evoking Mao’s legacy and running the risk of repeating Mao’s mistakes. Like Mao, Mr. Xi’s position within the Chinese Communist Party is rock-solid. Yet the grassroots effort he has mobilised against Covid is gathering internal momentum and is increasingly likely to last past the National Party Congress in October.
This will have severe and long-lasting consequences for China’s economy and society—and for investors and firms with exposure to the Chinese market. Mr. Xi has unambiguously hitched his personal legacy to the successful preservation of the zero-Covid policy. His speech at the Two Sessions conference on March 17 “swept down from the commanding heights” and “set the tone for all,” National Health Commissioner Ma Xiaowei wrote in a leading party journal this week. “He has personally commanded and made arrangements for the epidemic, taken overall control, and made resolute decisions.” Vice Premier Sun Chunlan, who has taken over supervision of the pandemic response in Shanghai, said this week that she had come to implement “General Secretary Xi Jinping’s requirements.”
Given the rising cost of containing the Omicron variant, this is a risky macroeconomic bet. As of Monday, 45 cities with 373 million people, representing 40% of China’s gross domestic product, were under partial or full lockdown, according to Nomura estimates. More cities and counties are under “static management,” a euphemism for quasi-lockdown.
Yet Mr. Xi’s logic is primarily political, not economic. To abandon the policy would require the Communist Party to countermand an order that it has repeatedly and unequivocally given for more than two years. This not only would be an admission of failure, it would badly delegitimise Mr. Xi’s carefully constructed hero-cult. The Chinese people have become accustomed to life with zero Covid. If Mr. Xi lifts the policy now, he could be seen as personally responsible for every death that follows. To revise the policy would therefore be an unacceptable risk for Mr. Xi ahead of the Party Congress.
Lower-ranking officials have gotten the memo. Wuhu, a city in Anhui province, locked down and initiated mass testing Sunday after identifying a single positive case. Xi’an, a city in Shaanxi province, locked down for more than a month in December and January and is back in de facto lockdown. Industrial cities Zhengzhou and Suzhou have initiated mass testing, banned social gatherings, closed movie theatres, gyms, and bars, and advised residents to work from home. Unless all these cities succeed in shutting down their outbreaks simultaneously, China seems headed for rolling lockdowns and strict limits on intercity travel for the foreseeable future.
Even after the Party Congress, Mr. Xi may consider it unacceptably risky to unwind the zero-Covid policy. It is time for markets to start taking this possibility seriously.
The history of the Great Leap Forward illustrates the worst-case scenario of what can happen when a Chinese leader insists that a pest be eliminated at any price. In 1958, Mao launched the “eliminate sparrows campaign,” arguing that birds were stealing grain from farmers’ fields. For every million sparrows killed, Mao promised, there would be food for an additional 60,000 people. More than three million people were mobilised in Peking alone. Schoolchildren banged pots and pans day and night to keep the birds from sleeping. Middle-school girls were organised in rifle regiments and given shooting lessons. Ordinary people climbed trees and strangled chicks in their nests.
Within a year, China’s sparrow population had collapsed. The result was a swarm of locusts that attacked crops. The annual harvest had already been badly damaged by collectivisation. Massive statistical errors from the overreporting of harvest data convinced central planners that China actually enjoyed a “superabundance” of grain, when in fact production was contracting. Tens of millions of Chinese died in the resulting famine.
China’s food system today is sufficiently marketised that the government bungling of food allocation won’t lead to widespread hunger. Government efforts to improve food provision to populations in lockdown have also made enormous strides in the past few weeks.
Yet as in the Great Leap Forward, the aggregate macroeconomic damage from pandemic lockdowns has likely been deeper than the official data suggest. As Daniel Rosen argued in Foreign Affairs, China’s reported 4.8% GDP growth for the first quarter of 2022 strains credulity, and the true data for the second quarter will surely be much worse, despite the coming fiscal and monetary stimulus. Since Mr. Xi has committed himself to an ambitious 5.5% annual growth target, the pressure on local officials to manipulate economic data will only increase as the Party Congress approaches.
If the zero-Covid policy becomes permanent, China’s external border may never reopen in any meaningful way, particularly for foreigners. But the implications for China’s social contract could be even more profound. In the wake of the Great Leap Forward, Mao’s more-pragmatic colleagues Liu Shaoqi and Deng Xiaoping tried to return to market economic reforms. To resist them, Mao turned to an increasingly paranoid style of repressive and ideological politics, leading eventually to the Cultural Revolution.
Since Mao’s death, the Communist Party has derived legitimacy primarily from its ability to deliver economic growth. Yet in recent years, as inequality has increased and growth has slowed for secular reasons, the idea of pinning legitimacy to ultra-fast growth has lost some of its appeal. As Mr. Xi enters a third term, perhaps he envisions a radically different future for China. Going forward, the party may derive legitimacy less from GDP growth than from its ability to protect the lives and health of the people, ensure “common prosperity” through redistribution of wealth, and preserve domestic social order with the help of its repressive surveillance tool kit.
In China, more than in other countries, the shadow of history looms large over politics. When Xi Jinping doubles down on a pandemic policy that makes no macroeconomic sense, rallying the people and the Communist Party to eradicate the virus, he knows that he is ordering a Mao-style mass mobilisation. History suggests that such movements gain momentum over time and are not easily reversed. It’s possible Mr. Xi has no intention of returning China to the relatively open-facing, gradually marketizing country that it was before the pandemic. If so, China will become a less dynamic, more statist and more ideological society in which the party rules and the masses follow.
Mr. Freymann is director of Indo-Pacific at Greenmantle, a macroeconomic and geopolitical advisory firm, and author of “One Belt One Road: Chinese Power Meets the World.”
More Coverage
Trump’s pick to lead FBI doesn’t support pardons for Jan 6 rioters
Kash Patel said he did not support blanket pardons for rioters who had engaged in violence against police — putting distance between himself from the President.
Off to a good start, but Trump’s executive orders were the easy part
The US President has gotten off to a running start, filling every day with action – but he can get only so far without congress.