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China's COVID lockdowns made its people depressed and hurt its economy
China’s economy keeps slowing down, and that could be a problem for the rest of the world.
On GZERO World, Shaun Rein, founder and managing director of the China Market Research Group, sits down with Ian Bremmer to explain why he’s become bearish on China’s economic outlook.
2023 was supposed to be the year China’s economy came roaring back after almost three years of brutal zero-COVID lockdowns that ground domestic spending and production to a halt. But Rein points to a few reasons why China’s rebound hasn’t exploded the way some economists predicted.
“I think people underestimated how much the lingering effects, not just economically but physiologically, that [zero-COVID] would have on China,” Rein says, pointing out that 50% of people in Shanghai suffer from anxiety and depression, according to the government.
Rein argues that because income levels in 2022 stayed so low, with millions of Chinese locked down and furloughed from their jobs, the revenge spending expected after zero-COVID ended never materialized. He also says that an increasingly hostile geopolitical environment under the Biden administration has made COVID recovery even more challenging.
Watch the GZERO World episode: China’s economy in trouble
And watch GZERO World with Ian Bremmer every week on gzeromedia.com/gzeroworld and on US public television. Check local listings.
- China flirts with deflation. Why is that a bad thing? ›
- The Graphic Truth: China's old vs. new zero-COVID ›
- China’s zero-Covid woes deepen ›
- Birdsong and stolen cherries: Lockdown life in Shanghai ›
- “Health is a human right”: How the world can make up progress lost to COVID - GZERO Media ›
- The US vs TikTok (and China) - GZERO Media ›
China’s economy in trouble
China’s economy has averaged about 10% annual growth year over year for the past four decades. It’s undoubtedly the biggest economic success story of our lifetime, but how long can that last?
Shaun Rein, founder and managing director of the Shanghai-based China Market Research Group, sits down with Ian Bremmer on GZERO World to talk China's post-COVID recovery, Xi's crackdown on the private sector, and why the last year has turned him from a bull to a bear on China's economic outlook.
Annual GDP growth has been on a relative decline since 2010, barring a big jump coming out of the pandemic. Decades of infrastructure investment have left local governments drowning in debt. Almost three years of zero-COVID politics ground China’s economy to a halt. Youth unemployment is surging to record highs and expected to keep climbing.
At the same time, President Xi Jinping is moving China away from the pro-investment policies of his predecessors in favor of ideological and national security priorities. But public support for China’s Communist Party is starting to show cracks, especially among citizens in wealthy cities who experienced the brunt of China’s brutal zero-COVID policies.
Can communist ideology mixed with capitalist ambition sustain growth into the future? Is Xi setting up China for another 4 decades of economic success? And what do China’s citizens make of its return to socialist roots?
Watch GZERO World with Ian Bremmer every week at gzeromedia.com/gzeroworld or on US public television. Check local listings.
- China flirts with deflation. Why is that a bad thing? ›
- We need to talk about China’s economy ›
- The Graphic Truth: China's old vs. new zero-COVID ›
- Birdsong and stolen cherries: Lockdown life in Shanghai ›
- Top stories of 2023: GZERO World with Ian Bremmer - GZERO Media ›
- Davos 2024: China, AI & key topics dominating at the World Economic Forum ›
Podcast: China's great economic slowdown
Listen: China is undoubtedly the biggest economic success story of our lifetime.
Between 1978 and 2017, China averaged almost 10% year-over-year GDP growth. Decades of pro-investment policies transformed China from a closed, centrally-planned economy to an economic powerhouse that could rival the US.
But in the last decade, Chinese President Xi Jinping has been moving the country back to its socialist roots, with major crackdowns in tech, real estate, and foreign investment. Xi’s vision is one of almost total state control, where businesses conform to the goals of the Chinese Communist Party, not the other way around.
Can communist ideology mixed with capitalist ambition sustain growth into the future? Is Xi setting up China for another four decades of economic success? And what do China’s citizens make of its return to socialist roots?
To discuss all that and more on the GZERO World podcast, Ian Bremmer sits down with Shaun Rein, Founder and Managing Director of the China Market Research Group, based in Shanghai.
Ian Explains: Why China’s era of high growth is over
Is China still on track to becoming the world’s largest economy? Ian Bremmer breaks down China’s great economic slowdown.
Between 1978 and 2017, China averaged almost 10% year-over-year GDP growth. Decades of pro-investment policies transformed China from a closed, centrally-planned economy to an economic powerhouse that could rival the US.
But President Xi Xinping has been moving China away from the pro-investment policies of his predecessors and back to its socialist roots. In recent years, the government has cracked down on everything from technology to finance to entertainment to foreign investment.
At the same time, 3 years of Zero-Covid policies sapped domestic spending and production. Decades of infrastructure investment have left local governments drowning in debt. China’s once-hot real estate market is in a massive slump. And youth unemployment is surging to record highs, threatening the very social pact that gives the Chinese Communist Party legitimacy in widespread support.
Can China’s communist ideology and capitalist ambition sustain growth into the future? Or does what goes up eventually have to come down?
For more on China’s lagging economy, watch the upcoming episode of GZERO World with Ian Bremmer on US public television and at gzeromedia.com/gzeroworld.
- China flirts with deflation. Why is that a bad thing? ›
- We need to talk about China’s economy ›
- The Graphic Truth: Zero-COVID is hurting China's economy ›
- Why is Xi Jinping willing to slow down China’s economy? ›
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- Davos 2024: China, AI & key topics dominating at the World Economic Forum ›
- China's economic slowdown is dragging down the rest of the world - GZERO Media ›
British PM Boris Johnson looking puzzled.
What We're Watching: Confidence in Boris, Shanghai reopens, chicken inflation
The Boris vote is coming
Following last week’s Gray report, findings from an investigation into allegations that Boris Johnson attended lockdown-violating social events during the pandemic, it seemed that the UK prime minister might avoid a vote of no-confidence in his leadership of the Conservative Party. But a clumsy response — Johnson claims the report “vindicated” him — and resulting criticism this week from members of his party suggest the vote is coming, perhaps as soon as next week. Here are the basics: It would take a formal request from 54 Tory MPs to force a vote and a simple majority of 180 Tories to oust him. For now, it appears the vote would be close. A narrow victory would leave him a diminished figure, but he could survive in power until a national election in 2024. A loss would create a wide-open, two-month contest to lead the party forward. The vote may wait until after a pair of crucial parliamentary by-elections on June 23. A loss for Conservatives in both those votes might seal Johnson’s fate.
Shanghai’s slow reopening
After a grueling two-month lockdown, 90% of Shanghai’s residents (some 22 million people) are finally allowed to move around the city somewhat freely. Residents of low-risk housing complexes — meaning no COVID cases have been identified for 14 days — no longer need to seek government permission to leave their homes, while many shops also began to reopen. Still, this should not be taken as a sign that Beijing is easing its commitment to a zero-COVID policy. Harsh containment measures are still being enforced, including in Beijing, where 5,000 people were forced into a quarantine facility this week after one man broke lockdown rules before testing positive. While photos show Shanghainese rejoicing at their newfound freedom, many are struggling to readjust, feeling traumatized after a 65-day lockdown in which the government often failed to provide them with enough food and medication. While China’s ruling Communist Party is keen to see the country’s economic hub resume activities hastily in order to reverse a trend of negative national growth, the city isn’t going back to normal just yet: most children will not resume face-to-face schooling for the foreseeable future, and significant restrictions remain for those seeking to leave the city.
Malaysian chicken export ban ruffles Singapore’s feathers
The effects of the global food crisis exacerbated by Russia's war in Ukraine have mainly hit poor countries, but now rich ones are also feeling the pinch. On Wednesday, Malaysia suspended all poultry exports due to an acute shortage of feed that has sent local prices through the roof. The ban has caused mass anxiety in next-door neighbor Singapore, where foodies are panicking it might spoil the taste of the country’s de-facto national dish: delicious Hainanese chicken rice (featured, of course, in the popular film Crazy Rich Asians). While we sympathize with Singaporeans having to replace Malaysian live birds with Brazilian frozen ones, there's a more troubling dynamic at play. Chicken feed is primarily made up of grains like corn and soybeans, which had already become more expensive by early 2022 due to supply chain disruptions, climate change, and higher energy costs but have now seen prices skyrocket after Russia’s invasion. What's more, since feed is by far the biggest input cost of poultry, chicken could soon become more expensive than beef in the UK. Time to go vegan?
Shen goes down to the courtyard of her residential complex at dawn to swipe cherries from the trees in the garden to make bread and jams.
Birdsong and stolen cherries: Lockdown life in Shanghai
Yang Shen has lived in Shanghai for more than 10 years, but it wasn’t until recently that the 36-year-old writer noticed something very particular about the city: the birds.
While they sing freely outside Shen’s window, Shanghai’s 26 million human residents are still cooped up in their homes, part of the world’s largest COVID lockdown.
Most governments around the world have already relaxed their pandemic restrictions, but China has doubled down on its zero-COVID policy, using harsh lockdowns and quarantines to stifle even the smallest outbreaks. Dozens of Chinese cities are now under lockdown as omicron variants circulate. By some estimates, nearly half of China’s GDP is currently affected by some form of restriction.
That has sent shockwaves through the global economy, further tangling snarled global supply chains. But the effects are felt most keenly in China itself.
In Shanghai, the recent lockdown began in early April. At first Shen was optimistic.
“As a writer you have to stay at home and focus,” she says, “you need isolation. But it turns out there's a big difference between ‘I don't wanna go out’ and ‘I can't go out’.”
Most Shanghainese are permitted to leave their homes these days only for mandatory COVID tests, and those who test positive are whisked off to quarantine centers. Throughout China’s most populous city, residents compete for deliveries of food and other staples via wholesaler apps that only serve groups of 50 households or more.
The local economy, meanwhile, has been crushed. By one measure in April, a grand total of zero cars were sold — more than 26,000 fewer than in the same month last year. Across China, retail sales have plummeted, and factories have ground to a halt.
After more than six weeks of this, Shen says she and her husband’s biggest fear is something worse than getting sick.
“We're not scared of COVID, we're scared of starvation.”
That concern is shared by millions across the city, particularly in poorer neighborhoods that can’t compete with large residential compounds like Shen’s to buy food in bulk.
Even Shen and her husband have had to cut back on daily meals, and they’ve gone to daring lengths just to find little variety in what they eat. Every few days, Shen says, they steal down to the courtyard of their residential complex at dawn to swipe cherries from the trees in the garden. They use them to make bread and jams.
But flouting lockdown rules can cause trouble with nosy neighbors and the local Communist Party committees.
Birdsong and Stolen Cherries: Lockdown Life in Shanghai | GZERO Worldyoutu.be
Camilo Cadena, 33, a Colombian-American artist who has lived in Shanghai with his partner for the past five years, recently took a stroll in his compound’s courtyard during a brief period of looser restrictions. Within minutes, a neighbor had sent his partner a grainy photograph of him from a high-rise balcony, with a message: “Isn’t this your fiancé?”
Cadena, who works as a consultant for public art projects in Shanghai, has decided to leave the city. Doing so requires signing a pledge that he will not return to the compound where he lives. It also means saying goodbye to close friends remotely.
“There is a bit of survivor’s guilt,” he says, “knowing that leaving is not an option for many people.”
That’s because the government has recently banned foreign travel for most Chinese nationals in a bid to control the spread of the virus.
Public health experts question whether zero-COVID can even work. World Health Organization chief Tedros Ghebreyesus recently said the policy simply isn’t sustainable given how contagious omicron is.
So why is the Chinese government sticking to it, despite such immense social and economic costs?
Public health is one part of the story. Vaccination rates among the elderly — the most vulnerable to the disease — are low. Fewer than half of Chinese over the age of 70 have been fully vaccinated and boosted. And even for those who have, there are doubts about the effectiveness of China’s homegrown vaccines, which are the only option for most people.
A recent study in the journal Naturewarned that without any restrictions in place, China could run the risk of more than 1.5 million COVID deaths in the coming months.
So far, the government reports a grand total of fewer than 15,000 for the entire pandemic. That’s certainly an undercount, but it’s still far below the death rates in most Western countries.
But politics are also at play, according to Yanzhong Huang, a global health expert at the Council on Foreign Relations.
He says that President Xi Jinping has a personal stake in ensuring the success of zero-COVID, especially as he prepares to be elected to an unprecedented third term as Communist Party boss this fall. That means local and regional officials all the way down the chain of command have an incentive to follow suit as well.
To back away from zero-COVID now, says Huang, “would be admitting policy failure” not only at home but globally. Beijing’s authoritarian approach is meant to compare favorably with the more disjointed strategies of Western democracies.
In recent days, Shanghai officials have said they aim to end the lockdown by June, now that the official case count has fallen to zero outside of the official quarantine centers.
It’s anyone’s guess whether the city will be able to hit that target, as even a brief resurgence of cases could lead to fresh lockdowns.
But for Shen Yang and her fellow Shanghainese, June can’t come soon enough.
“Every time I post anything on my social media, I say something like, ‘Okay, summer is coming. When can I get out of this prison?’"
Additional reporting by Sarah Kneezle.
The Graphic Truth: Zero-COVID is hurting China's economy
Xi Jinping’s zero-COVID policy has saved many Chinese lives … at a huge economic cost. China’s economy is now back to the early days of the pandemic: the manufacturing index is down almost four points from a year ago and at its lowest level since early 2020, while exports are weak due to zero-COVID restrictions at major ports like Shanghai. We take a look at Chinese manufacturing and exports over the past year.
Hungary's Prime Minister Viktor Orban and European Commission President Ursula von der Leyen during their meeting in Budapest.
What We're Watching: Hungarian holdout, hope in Shanghai, US troops return to Somalia
Is Hungary holding the EU “hostage”?
The European Commission is pushing hard for a bloc-wide ban on Russian oil imports. But one member state — Hungary — has gone rogue and is holding up the embargo. At a meeting of EU foreign ministers on Monday, Lithuania’s representative accused Hungary of holding the bloc “hostage,” after PM Viktor Orbán demanded that Brussels dole out hundreds of millions of dollars to offset losses from moving away from cheap Russian fossil fuels. Orbán is buddies with Vladimir Putin and has been trying to expand Hungary’s economic relationship with the Kremlin in recent months, so he is driving a hard bargain, saying that ditching Russian oil would be an “atomic bomb” for his country’s economy. Landlocked Hungary relies on Russia for around 45% of its total oil imports, and finding alternative sources could lead to shortages and price hikes at a time when Hungarians are already grappling with sky-high inflation. Still, Brussels says Budapest is being greedy because Hungary has already been given a longer window — until the end of 2024 — to phase out Russian imports. But Orbán is hoping to get more concessions ahead of a big EU summit on May 30, when the bloc aims to find a political solution to this stalemate.
Shanghai’s June bloom
Officials in China’s most populous city say they are planning for life to return to normal by June 1 following a draconian COVID lockdown that has kept most of Shanghai’s 26 million residents cooped up since early April. China’s zero-COVID policy, which imposes harsh restrictions in response to even the smallest outbreaks of the virus, has wreaked havoc not only on the lives of tens of millions of people in Shanghai and other Chinese cities but on global supply chains too. When the world’s second-largest economy buys and makes fewer things, the world quickly feels it. Public health experts, including the head of the World Health Organization, have said that zero-COVID is unsustainable due to the high transmissibility of omicron, but Beijing remains unmoved. Given the low vaccination rates among China’s elderly (and most vulnerable) population and questions about the efficacy of Chinese-made jabs more broadly, researchers warn that if omicron were left to spread freely in China, more than 1 million people could die in the coming months. That’s something that Xi Jinping seems keen to avoid ahead of this fall’s 20th Party Congress, where he’s aiming to be re-“elected” to an unprecedented third term as party boss and president. Will Shanghai soon find a way out of lockdown, and will the city become a model for other Chinese urban centers looking to get back to normal?