Is Xi Jinping Really In Control Of China’s Covid Crisis?

In China, an old literary folktale written by Hans Christian Andersen is playing out. The Emperor’s New Clothes is often read to children in kindergarten to instil in them an important virtue, that of speaking the truth even in the most difficult of times. However, today, in China, before the emperor (read Xi Jinping), no one in the Chinese Communist Party or the republic has the valour to stand up against the prolonged Covid-zero policy, one that is not only costing enterprises in China but across the globe.

After more than two years, over 500 million cases, over six million registered deaths, and economic losses worth billions of dollars across the globe, the sovereigns and their citizens have begun moving on towards a post-pandemic life. In China, however, the emperor, quite like the one in Andersen’s classic, is looking for a new crisis after Wuhan, president Donald Trump, and Hong Kong, one that will win him accolades amongst the citizens.

Put simply, Xi wants the homerun, the victory parade, and the entire charade to run until autumn, later this year, for that is when the National Congress of the CCP will get together to give the emperor what he strongly desires — the right to rule for a lifetime, even if it costs him the economy for two quarters.

Clearly, in his big year, Xi is torn between the choices that troubled every leader, including India’s Prime Minister Narendra Modi, in the early days of the pandemic — to lower the death toll at the cost of the economy or to open the economy at the potential cost of political will.

Until 2021, the answer to this conundrum was not simple, but most nations, including India, had gone for a balancing act post-Delta wave. The norm was to open the national economy but with localised lockdown in the areas where the cases are high. The vaccination drive was a success and even with more than 300,000 cases during the Omicron wave in January 2022, the economy continued to thrive. China, however, is stuck in the 2020 rut, with questions now being raised against the success of its vaccination drive, and the efficacy of the vaccines in use.

China today continues to impose mass testing, contact tracing, and quarantines for passengers coming from foreign nations. The debatable Covid-zero strategy, as per the government, is to prevent 50 million cases and a million deaths. For the last two years, Chinese propaganda has focussed on the successful control of the virus, compared to the United States where deaths have exceeded one million across two administrations. For Xi, the Covid-zero policy is also about sustaining that agenda.

The costs, however, are building up for companies across the world. While the pandemic has not ushered a mass exodus of supply chains run by companies invested for the long-term in China, the lockdowns in 2022 are surely denting their quarterly earnings. Add to it the whammy from the Russia-Ukraine crisis and companies, especially in Europe, are left like sitting ducks in this economic tsunami.

A survey, released earlier this month, by the European Union Chamber of Commerce in China, highlighted the concerns. Of more than 350 companies surveyed, close to 60 per cent of them are looking at decreased revenue projections for 2022. Amongst more than 200 companies looking at losses for 2022, almost two-thirds are looking at a revenue decrease of more than 10 per cent. About 15 per cent of the companies are looking at revenue losses exceeding 20 per cent for the year. Thanks to the unpredictability of the lockdowns, a quarter of the surveyed companies are looking to move their investments outside China.

The losses, however, are not restricted to European companies alone. Tesla, Toyota, and Volkswagen have revised their projections for the current year as delay in the delivery of key raw materials disrupts their production. Tesla’s Shanghai plant, usually shipping out close to 60,000 cars a month, was only able to produce a little over 1,500 cars in April, given it was shut for three weeks. Toyota, due to the supply-chain disruptions has already cut its revenue forecasts by 20 per cent.

The stress is also being felt at the Chinese ports. In Shanghai, the number of containers processed in April 2022 was the third-lowest since January 2019, at around 3.1 million. In January 2022, before the lockdowns kicked in, the port processed 4.4 containers, the highest in over three years. April 2022 has been the worst month for the Shanghai port since February 2020 when it processed merely 2.3 million containers.

The lockdowns have also resulted in increased import hours, with the average dwell time for a container increasing from less than two days in March to more than 15 days in mid-April. The cascading effect of the increasing waiting time will be felt in the West where the delay in the arrival of container shipments will create more problems. The containers waiting to be exported, however, are dealing with significantly lesser delays.

For Jinping, the inflation resulting from the Russia-Ukraine crisis has also been critical in absorbing the supply-chain disruption, as the demand in the western market for Chinese products goes down. Exports in April, for China, were the lowest since June 2020, growing at 3.9 per cent year-on-year in April.

The question is how far will Jinping go in shackling the economy to secure his political position. Within the CCP, backing the Covid-zero policy, even at the cost of the local economy, has become the litmus test for provincial and local leaders, leaving no one to bell the cat. Even the majority of investors, for now, are willing to absorb the pain and faltering revenues, hoping to turn their fortunes around in the long run.

The likes of Tesla, looking at China for one-third of their revenues in the future, and Apple, even with their plants temporarily shut, are silent for now, but two years later, as excuses run out, the questions are piling up for the emperor as more and more people begin to question the necessity of Covid-zero framework, as they begin seeing the folly where the CCP wants them to see success.

Even after 27 months of Wuhan, is Jinping really in control of China’s Covid crisis?

Not even remotely.