Christopher Kuehl
Managing Director • Armada
The data that has come pouring from China of late points to a real economic crisis, the worst the nation has experienced in decades. The slump in the second quarter took the economy to a contraction of 2.6% from the first quarter and the annual growth rate was a pathetic 0.4%. This affects the entire global economy as China drives one fifth of total worldwide GDP. The impact on the economy of China has been severe – over 265 million people in lockdown and that affects almost 20% of the nation’s economy. There has been a massive surge in youth unemployment – estimates run as high as 30% without jobs. The housing market has utterly collapse and has taken hundreds of businesses and banks down with it. Local governments have incurred massive debts and have no way of paying them back. It is by any account an economic meltdown and it is one that has been self-imposed. The Chinese are the only major nation that has continued to pursue the draconian tactics of lockdown and “zero-tolerance” to contend with the pandemic. The burning question is why. The cartoon below was in the major Japanese newspaper and sums up the feeling in the area – China has become its own worst enemy.
By now the factors that led to China’s crisis are well known and the role of politics has been very apparent. The outbreak of the virus in Wuhan was denied and covered up for months in 2019 as local officials did their best to hide the issue from Beijing. When the virus spread beyond their control the Beijing leadership joined in the campaign to obfuscate and deny and the local crisis became a national one and then spread to the entire world. The time to isolate and quarantine was in October of 2019 – not three years later. The challenge has been made worse by the decision to focus on a vaccine that was inferior. The Chinese version was never more than 40% effective against Covid and with the omicron variants the effectiveness has fallen to less than 20%. The emphasis for vaccines and treatment was placed on party members, the military and “essential workers” rather than on the elderly and vulnerable and the death toll was therefore high. Throughout this crisis the emphasis has been on tactics of isolation and control despite the abundant evidence of that strategic failure.
The variant that is sweeping China (and the world) is highly transmissible but it also seems to be less dangerous to those that are basically healthy. There have not been as many hospitalizations and deaths anywhere in the world and that is actually part of the problem. This version of Covid is not called the “stealth virus” for nothing. Most have no symptoms or very mild ones and are essentially unaware they even have the disease unless they are tested almost daily. That is simply not remotely possible in a nation of 1.4 billion people. The majority of the world has come to accept the virus is now a constant and the policies will have to adapt to some combination of tolerance and control. Emphasis on the most vulnerable and urging caution while resisting the urge to shut down the daily lives of the population.
The assessment of the Chinese policy leads analysts to conclude these tactics are driven by political control. The leadership refuses to admit mistakes that led the country to this point and now seem driven by its single-minded commitment to total control. It is as if the autocrats think they can issue orders to a virus. This can’t be done and China is in the process of destroying its own economy in the pursuit of the impossible.
