In recent weeks, some Chinese government officials and political advisers worried about the economic impact of the country’s endless Covid lockdowns have begun, privately, to cite the instructive example of the fourth-century BC physician Bian Que.
According to legend, Bian Que warned a local leader that he had contracted an illness that required immediate treatment. But the leader insisted his health was fine even as the disease seeped into his bone marrow, sealing his fate.
President Xi Jinping, officials and political advisers warn, may also be unaware of the possible consequences of his “zero-Covid” policy, which has forced Shanghai’s 26 million people into a draconian lockdown lasting five weeks and longer than many people now fear may be repeated in Beijing.
The stakes are high for Xi, who is aiming for an unprecedented third term as leader of the Chinese Communist Party, state and military later this year. His carefully cultivated image as a strong and capable leader could be badly tarnished if the government loses control of Covid – or rushes into an economic crisis trying to contain it.
Weijian Shan, a seasoned investor in China, said in a recent video-recorded meeting that the country was in a “man-made” crisis. “Large parts of the Chinese economy, including Shanghai, have been semi-paralyzed and the impact on the economy is going to be very profound,” Shan said. “[China’s leaders] think they know better than the market and many of them [their] the actions have caused real damage to the market and the economy.
A political adviser to the government, who asked not to be identified, said making clear to Xi that his previously successful zero-Covid policy might not stand up to the highly contagious variant of Omicron without devastating economic costs was now a “key challenge for the system”.
“People tell Xi that lockdowns are a concern, but I don’t think they say how much of a concern it really is,” the adviser said. “He is so proud of China’s achievements in the fight against Covid that I don’t think he is worried about the economy.
“I don’t think Omicron is going to be contained, but that’s what the great leader said, so people are making decisions based on that assumption,” he said, adding that the situation in China was now worse than when Covid first spread in early 2020.
At key moments in Shanghai’s lockdown, Xi appeared at best deaf, at worst unaware of conditions in China’s most important financial and industrial hub.
On April 8, as it became clear Shanghai’s lockdown would be extended well beyond the originally planned 10 days and residents struggled to secure sufficient food supplies, Xi met with Olympians from country winter. The President, State Media reported“sparked joyous laughter and applause” when he referenced comments from Eileen Gu, the US-born ski star who now represents China, about how much she “likes to eat Chinese pies.”
Three weeks later, in a televised address to China’s premier international business forum in the southern province of Hainan, Xi did not mention the intensifying Covid outbreaks, instead focusing on how “the fundamentals of Chinese economy – its strong resilience, enormous potential and long-term sustainability – remain unchanged”.
A Chinese planning official told the Financial Times that some top executives, skeptical of data compiled by the National Bureau of Statistics, are increasingly turning to their own personal networks to interview bosses of state-owned enterprises and companies in the country. private sector on the true state of the economy. He added that Vice Premier Han Zheng, whose portfolio includes the sprawling and struggling property sector, is now closely monitoring new housing registration data compiled by local housing bureaus.
However, Han disagrees with Xi’s top financial advisers, led by Vice Premier Liu He, on how to respond to China’s economic challenges. Liu, who worries about the potential impact on the financial system, has repeatedly tried to reassure investors that Xi’s administration will act to stimulate the economy.
But the assurances have not led to detailed follow-up action, and leaders’ room to shift monetary policy is limited by worries about inflation and capital flight as U.S. interest rates rise above those of China.
Xi, speaking at an economic conference on Tuesday, pledged to accelerate investment in a range of critical infrastructure sectors – but did not provide a timetable or an overall amount for the effort.
Joerg Wuttke, director of the European Chamber of Commerce in China, says Liu’s reputation as the government’s most capable economic official – and its strongest proponent of market-oriented reforms – has been “altered”. “Investors followed [Liu] almost blindly for years [but] it fails to implement important things in its own system anymore,” Wuttke said.
Eswar Prasad, a China finance expert at Cornell University, said the zero Covid policy had “severely limited” the macroeconomic tools available to Beijing.
“The Chinese government is trying to use limited and targeted monetary and fiscal measures to support growth while controlling inflation, financial risk and currency depreciation,” Prasad said. “It would be a tough juggling act at the best of times, but it’s even more so when the economy is already creaking.”
As Xi’s zero Covid crusade continues, the suffering in Shanghai intensifies. A local resident, a middle-class professional who asked not to be identified, said she kept a suitcase ready in case she was summoned to a centralized quarantine facility.
“It reminds me of Dmitri Shostakovich,” she said, referring to one of the Soviet Union’s most famous composers. “Every evening he waited for the KGB, listening carefully to the footsteps and the elevator [noises]. Guess that’s why his Jazz Orchestra No 2 [suite] lingers in my head these days.
Shanghai’s predicament has given him a new appreciation for the democratic systems of government so despised by Xi. “Democracy cannot guarantee the best governance, but it can prevent the worst from happening. That’s enough.”
Additional reporting by Tabby Kinder in Hong Kong