China’s COVID-19 lockdowns will exacerbate the global supply chain problem
China’s COVID-19 lockdowns will exacerbate the global supply chain problem

China’s COVID-19 lockdowns will exacerbate the global supply chain problem

This week, more than 50 million people in China were ordered to lockdown – prevented from going to work or even in some cases from leaving their homes. It was a backlash from the Chinese government to prevent uncontrolled outbreaks of the highly contagious omicron variant of COVID-19.

It is not yet clear whether the shutdowns will succeed in maintaining the zero-COVID-19 strategy that China has had in place since the start of the pandemic. What already seems obvious is that – with factories closed all over China, including in the southern technology hub of Shenzhen – the global economy will be hit.

Can the Chinese economy face its own crisis? And how did this come about – two years into the pandemic? These are some of the questions that came up in my conversation this week with FP columnist Adam Tooze on the podcast that we are hosting, Ones and Tooze.

This week, more than 50 million people in China were ordered to lockdown – prevented from going to work or even in some cases from leaving their homes. It was a backlash from the Chinese government to prevent uncontrolled outbreaks of the highly contagious omicron variant of COVID-19.

It is not yet clear whether the shutdowns will succeed in maintaining the zero-COVID-19 strategy that China has had in place since the start of the pandemic. What already seems obvious is that – with factories closed all over China, including in the southern technology hub of Shenzhen – the global economy will be hit.

Can the Chinese economy face its own crisis? And how did this come about – two years into the pandemic? These are some of the questions that came up in my conversation this week with FP columnist Adam Tooze on the podcast that we are hosting, Ones and Tooze.

The following is a transcript of the interview, edited for clarity and length. For the whole conversation, subscribe to Ones and Tooze on your favorite podcast app.

Cameron Abadi: How does the scale and severity of the shutdowns in China compare to what we saw at the height of the pandemic in the West? And is there anything about those kind of lockdowns that increases the likelihood of economic ripple effects for the rest of the world?

Adam Tooze: TheThese are definitely serious lockdowns. Theis far more serious than anything we’ve ever seen in the United States. You know, talking about the West in this context, I think, is a bit misleading because – when we speak as someone who went through the pandemic in New York – we never experienced a lockdown in either the European or Chinese sense. It was largely enforced by social conformism rather than any kind of actual coercive measures.

I would say what weto look at in China is probably comparable to what Europe has repeatedly used since the spring of 2020. It involves closing larger factories, closing public facilities, maintaining only essential services. But I dodo not think soIt will be as draconian as the measures that China itself introduced in Wuhan in February 2020 to stem the initial onset of the disease.

These lockdowns mean just as much as they do because of where they arehappens again. In the first epidemic in China in 2020, the center was Wuhan, which is a central part of the Chinese economy. But Shenzhen and Shanghai are potentially affected now – and that really brings us to the heart of Chinas role in global supply chains. I mean, wehave already seen closure announcements from people like Foxconn, which is Apples key provider of iPhones. Large manufacturers of touch screens have shut down. This will really affect global supply chains if it extends much beyond the week. And if the experience of China in the spring of 2020 is anything to go by, the resulting mess in global supply chains could take months.

CA: Reveals this disruptive wave of omicron inconsistencies in China’s zero-COVID-19 strategy: to prevent any and all outbreaks? Did Chinese officials believe that zero COVID-19 would serve as a way to eradicate the entire pandemic?

ON: Well, I think the first thing to say is that zero COVID-19 should have been all our goals. ThatIt signals that the rest of the world has not responded to the pandemic that way. Chinas problem is that its trying to pursue a zero-COVID-19 policy in one country. And ita large country with strict border controls. But nonetheless, it isIt’s really hard to make it work when the rest of the world is basically going for some sort of half combination of herd immunity and high quality vaccination. And we shouldt forget that as late as January this year, thatis only weeks ago now, 2,000 people died one day in the United States of this disease. So Chinas problem is really the fact that the rest of the world totally failed to get a handle on this disease.

And I think sois why the questions really at this point should be about Chinas vaccination program.

CA: So why exactly has the Chinese vaccination program run into difficulties? Have Chinese authorities just not invested enough resources in distributing their own vaccines? Or did they let national pride get in the way of using more effective vaccines developed in the West?

ON: Yes, I think there are three problems here. But again, first of all, we need to apply a corrective. China managed to vaccinate one billion people by September 2021. At present, it has spread 3 billion doses of vaccine, so its launched the largest vaccine effort in the world.

The questions to be asked are about the choice of vaccines, the effectiveness of the vaccines theyhave used, and their distribution. The Chinese home-grown vaccines are, as we know, much less effective at stopping infection, especially for omicron. They appear to protect against hospitalization and death, but not against infection. And if you have a population that is only partially vaccinated and immunoniv in that sense itis not exposed to COVID-19 at all, thata really critical mistake.

China has its own mRNA programs, but I think soIt’s hard to avoid the impression that they really want to resist the importation of Western vaccines. China is therefore, I think, guilty in the sense that it has not done everything it could at all to gain access to mRNA technology.

The second thing to say, and this is in a way the most dangerous aspect of the situation, is that China has signal-wise failed to vaccinate its older and more vulnerable population. And the numbers here are actually already quite staggering: 40 percent of China’s population over the age of 80 have not been vaccinated. In Hong Kong it iss nearly 70 percent of senior citizens are not vaccinated, whereas it (obviously) should have been prioritized precisely to give them vaccines.

Having said all that, if China had turned to the global market for Western mRNA vaccines last year, it would obviously have run into a wall because, as we all know, they were fully commissioned by Western high-income countries. Many advocates hope that the production bottlenecks for Pfizer and Moderna vaccines will finally be broken in the coming months and that the world will be flooded with mRNA vaccines. We imagined, of course, that these would be deployed as a top priority for low-income countries, especially in Africa, where vaccination has not really expanded so far. It could be that these reserves of production capacity provide the solution to protect enough of the Chinese people quickly enough. But that would require Beijing to jump over its own shadow.

CA: How uncertain is China’s own economy as a result of these shutdowns? Do they combine these shutdowns with the kind of economic aid measures that we saw to some extent in the West: income aid for people who cannot work, rescue operations for companies, that kind of thing?

ON: It is in a rather uncertain situation and it is also moving very fast. The context is that in recent years, based on their success in dealing with the first two waves of COVID-19, embarked on a really major structural reform. [Chinese President] Xi Jinping Announces New Agenda for “common prosperity”As the goal of his regime. They deliberately triggered crises in both the real estate and tech sectors with massive new regulatory measures for the tech sector and the deflation of the huge bubble in mortgage lending. So it was sort of their priority for economic policy, and they set a more modest growth target of a little over 5 percent.

Now they have entered into this omicron crisis, which is really putting the most important production centers in southern China in danger. And wehas seen a collapse in the financial markets unfold now in China at extraordinary speed. Earlier this week, there was an absolutely massive sale on the stock market in Shanghai. For several months, the real estate companies’ debt has been lying in the basement, downgraded to junk, if that. ThatIt is an extremely unstable situation and I would expect over the next few months that we would see Beijing roll out a number of different responses. These can be different types of infrastructure costs.

But so far they have not been very good at providing immediate support to households in the form of holiday pay or stimulus checks provided by the United States and Europe. So this will again be a very big test of the regime. Such stimuli are generally not how economic policy in China works. It is quite slow actually to provide welfare services directly to the population. And if this crisis marks a break in that pattern, then I think we willI have to say that the common prosperity agenda was developing real weight and real substance.

CA: Wehave seen a lot of supply chain outages recently – both from these lockdowns and past elsewhere [as well as] the war in Ukraine. Is there any recognition among economic actors that we may need more redundancies in global supply chains? Do we perhaps know that globalization on its own terms just is nott resilient enough to crises?

ON: I mean, that narrative is definitely swirling around. I must say that I personally do notdoes not find it terribly compelling. After all, we had the mother, the father, the grandfather, the grandmother of all the shocks you know, with COVID-19 in 2020. Wehave never seen anything like it. And what happened to world trade? It returned. I knowdo not think we get massively redundant supply chains for chips or smartphones or cars because itis simply too expensive to retain that kind of spare capacity in the system. What we are likely to get is a series of boom-bust cycles evoked by scarcity.

When we say weI mean, whose crisis is in the supply chain? I mean itThis is certainly a problem for consumers, but you have to ask yourself: after all, are the companies involved really losing profits as a result? At that point, it gets serious and people have to change their business models. So I’m thinking thereIt will be an adjustment, but it will be driven by the calculation of profits and losses. I knowdo not think sowill be driven by geopolitics. The Biden administrations efforts so far to create decoupling from China have been signal-wise unsuccessful, and theydo not really get buy-in from either US companies or Americas security policy partners in the rest of Asia, who simply have too much to lose in their economic relations with China.

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