China Crushed Covid. But Covid Zero Could Crush China

China’s Covid Zero strategy has been drastic and effective, saving lives and keeping the economy on track. But a new wave of virus cases is highlighting the growing costs of that approach – as well as the perils of any attempt to change it.

Authorities are fighting to curb the spread of the omicron variant among a population that lacks natural immunity and only has access to home-grown vaccines that are less effective than some of the global alternatives. Shanghai – the country’s financial center – is locking down just weeks after the technology hub of Shenzhen was forced to do so.

In the months ahead, China will likely remain geared toward snuffing out the virus, rather than learning to live with it Western-style. Still, as the challenges of protecting public health and the economy with a Covid Zero policy become more apparent, the debate is starting to shift. Any decision will have momentous consequences for a population of more than 1.4 billion and for a world economy already reeling from the war in Ukraine.

So Far, So Good

On health and growth, China’s performance in the pandemic has been better than most other countries

Bloomberg Economics and Bloomberg Intelligence have analyzed the health and economic implications of three potential paths ahead. The first is the status-quo: targeted local lockdowns to keep cases close to zero. The second foresees a gradual opening, backed by more advanced vaccines. The third involves the nightmare of a widespread outbreak triggering a national lockdown.

How China Can Move Forward

Politics weighs in favor of the first scenario. President Xi Jinping is seeking a mandate for a third term at the end of this year, suggesting any meaningful change of direction will likely have to wait until 2023. But moves toward opening in Hong Kong – and recent comments by a Covid advisor to the government of Shanghai – hint that an earlier shift is also possible.

With the costs of targeted lockdowns increasingly evident, a gradual and controlled opening appears to be the least-bad path forward – and the one China is likeliest to take in the end. The question is when and how. There are no zero-cost options, but the evidence suggests that fatality rates under this scenario could be a fraction of the almost 1 million Covid deaths that the U.S. has suffered — and perhaps even below the 88,000 who die in China from the flu in a typical year.

Residents have swab samples collected at a testing facility in Shanghai on March 28.Photographer: Qilai Shen/Bloomberg


In the worse-case scenario of omicron spreading out of control, Hong Kong’s experience suggests the fatality rate on the mainland could reach 50,000 a day. China’s determination to avoid that outcome would likely entail a national lockdown. That would potentially slow economic growth to 1.6% this year and send shock waves through the world economy. Among the likely results: lower commodity prices, and a more gradual pace of Federal Reserve interest-rate hikes.

Shanghai Lockdown

There have been about 40,000 confirmed cases in China’s latest Covid wave and substantially more if asymptomatic cases are included. In most countries, that number would be unremarkable. In China, it’s the highest since the onset of the virus.

Shanghai on Sunday announced it will lock down the city in two phases to carry out mass testing. The second phase began on Friday, confining some 16 million people living in the western part of the city to their homes after ending a four-day lockdown of the eastern half. That follows more than a week of curbs in Shenzhen and an ongoing lockdown in Jilin, an industrial center in the northeast. Altogether, 20 provinces – accounting for some 70% of GDP – have areas where the risk of Covid is now classified as high or medium.

The economic costs of lockdowns are plain to see.

China’s industry has rebounded, but consumption remains depressed. The Shenzhen shutdown contributed to a plunge in the stock market and sent a shudder through global supply chains. Foxconn – a key supplier to Apple – was among those forced to close factories. In Shanghai, Tesla Inc.’s plant had to suspend output.

Consumption Contagion

China’s industrial recovery is near complete. Lockdowns have depressed consumption

Then there are the social costs. In November 2020, the sight of streets in Shanghai crowded with marathon runners when the rest of the world was still socially distancing showcased China’s success in managing the pandemic. Now, the situation is reversed: Shanghai schoolchildren are back in remote learning, whilst most of the world has opened up.

China hasn’t seen anti-vax protests like the ones in North America and Europe. Still, a population growing weary after two years of testing and controls adds another reason for Beijing to shift away from Covid Zero.

China’s Omicron Risk and Opportunity

Above all, the risk to public health is rising.

Under the current Covid Zero approach, China’s priority has been to minimize infections while keeping the economy functioning as smoothly as possible. That entails widespread testing and local lockdowns, a process Beijing calls “dynamic clearing.’’ Omicron is making this harder.

Local authorities said they plan to split Shanghai in two, locking down one half and then the other over the next week and a half.


Even with full vaccine cover and a booster shot, international experience shows that protection against infection from omicron is limited. In the U.K., two doses of the AstraZeneca vaccine and an mRNA booster delivered protection rates against symptomatic infection that fades from 60% one-to-two months after the final shot to just 40% three months later. (By contrast, protection against the delta variant was above 90%). Since China’s vaccines have proven less successful at stopping transmission than the mRNAs – though they’ve generally been effective at preventing severe infections and death – the risks there are likely higher.

Making matters worse, omicron’s generation time – the period for a person to become infectious — is an abbreviated 1.5-3 days. This means people may transmit the virus before they even know they have it. Asymptomatic cases, common with the variant, accelerate the spread.

Still, omicron may also represent an opportunity. In a population with a good level of immunity from vaccines, and with treatments increasingly available, the severity of the disease is lower than other variants – a point that’s been noted by China’s medical professionals.

Omicron Outbreak

China is in the midst of its worst outbreak since the start of the pandemic

If China can get enough effective shots into arms, it would have a good chance of managing a controlled opening with a far lower cost in human life than in other countries.

Here’s what that might look like:

  • First, China needs more mRNA vaccines. In late 2020, BioNTech said about 100 million doses would be available for China, which would be enough to make a start on vaccinating the most vulnerable groups. Its local partner has filed for regulatory approval, which hasn’t been forthcoming as the government preferred to lean on locally-developed shots. But in February, China signaled a potential shift away from its policy of preferring the domestic pharmaceutical industry, by granting approval to Pfizer Inc.’s anti-viral treatment Paxlovid.
  • With those vaccines in hand, China would identify a city or province to begin the controlled opening. The entire local population would be dosed with an effective combination of vaccines and boosters. Outbound travel to the rest of China would require strict quarantine. Inbound travel would be opened up — including from foreign countries.
  • When an infection occurs, the virus would be allowed to spread across the local population. Pharmaceutical interventions like Paxlovid could be used to limit the impact on the most vulnerable — though supply constraints mean this would not be a panacea. Once the wave has run its course, the local population -– now protected by both effective vaccines and natural immunity – would have a high level of protection. The process would then move to the next province, or set of provinces, until the entire country is inoculated, immune, and open.
  • Economic output for 2022 in this scenario isn’t much changed from the current Covid-Zero track. But the future gains are substantial, both for growth and for public health. The risk of a nationwide outbreak and lockdown will be removed, travel with the rest of the world will reopen, and life for households and businesses return to something like normality.

The following table illustrates some of the main Covid policy options and their likely consequences for public health and the economy.

China’s Covid Scenarios

China’s past performance suggests all of this could be accomplished fast. In June 2021, it was administering almost 20 million vaccines a day. At that pace, delivering booster shots to the 127 million people of Guangdong, China’s most populous province, would take just a week.

Estimating the health risks of controlled opening with any degree of accuracy is impossible, because of all the unpredictable variables – from demographics to the efficacy of vaccines and treatments – that determine what share of the population suffers serious symptoms.

In the Netherlands, the fatality rate during the omicron wave was 0.75 per million per day, based on Bloomberg Intelligence calculations. In the U.S., it was 5.2. For China, assuming an outbreak that lasts a month, an outcome at the bottom end of that range would mean around 31,000 deaths. At the top end it would be closer to quarter of a million – a number so high that even approaching it might trigger a change of course from Beijing.

The Costs of Covid Zero

Tragic though any such loss of life would be, the cost of doing nothing might end up being even worse.

China’s demonstrated capacity to impose strict controls means that an unchecked virus sweeping across the country is an unlikely scenario. If it did occur, the results would be disastrous.

Elderly residents wait to get on a mobile vaccination bus in Guangzhou on March 20.Source: VCG/Getty Images


The situation in Hong Kong isn’t an exact parallel – the former colony doesn’t have the same capacity to impose lockdowns. Still, it offers a glimpse of how bad things could get, especially since China – like Hong Kong – has fallen short in vaccinating its oldest people. With the health system overwhelmed, the fatality rate in Hong Kong reached 37.4 per million on March 16. In mainland China, this would translate into 50,000 deaths in a single day.

If there is a widespread outbreak, the fight to prevent such a wave of deaths would require draconian lockdowns, comparable in severity and scope to those imposed in early 2020. The result would be a severe blow to output, with GDP growth for the year slumping to around 1.6%, compared to Bloomberg Economics’ current expectations of 5% (which assumes continued targeted local lockdowns).

The impact of such a sharp slowdown would not be confined to China. Global growth – already reeling from the war in Ukraine – would take another hit. The impact on inflation is harder to predict. On the one hand, slower growth is disinflationary, and weaker Chinese demand would hit commodity markets, taking some of the heat out of energy prices. On the other, if China’s factories and ports stop working, supply chain snarls will worsen.

Exiting Covid Zero—Paths for GDP

A national lockdown would trigger a contraction in output

For the Fed and other central banks, lower growth and higher uncertainty would make a case for slower rate hikes. Back in 2015, the collapse in China’s stocks and slump in the yuan was enough to delay the start and moderate the pace of Fed hikes. This time, the impact could be bigger, especially with Europe already facing an energy squeeze.

What Will Xi Jinping Do Next?

It’s not just health and economic factors that will determine China’s path forward. Politics also plays a role. With Xi positioning for a precedent-breaking third term as party secretary and president — a decision is expected at the Communist Party Congress this fall — the base case is for “dynamic clearing” to stay in place, and any significant experiments in controlled opening to wait till 2023.

There are benefits to delay. China will have more time to acquire the billion-plus mRNA boosters it requires, gather information on what combination of local and imported vaccines work best (data from other countries shows a mix and match approach is effective), procure more treatment drugs, and move healthcare resources into place.

But there are also costs. The outbreak in Hong Kong demonstrates that strict controls are no guarantee of Covid Zero success and that the consequences of failure can be severe.

Perhaps for that reason, there are tentative signs China is considering a change of approach. Beijing’s top virus fighter has denied it, but Hong Kong’s March 21 announcement on easing restrictions could be an indication of what’s to come on the mainland. Zhang Wenhong, a Covid adviser to the municipal government in Shanghai, has said the next stage in fighting the virus will require vaccines, treatments, and medical resources – a hint that preparations are already underway for a shift away from Covid Zero.

At a politburo meeting in March, Xi pledged to reduce the economic impact of his Covid-fighting measures. Still, that doesn’t herald a Western-style switch to living with the virus, because in the calculus of China’s government the benefits of snuffing out infections outweigh the costs. It estimates the strategy has avoided 1 million deaths and 50 million illnesses.

As Ren Yi – an influential and well connected commentator who goes by the name of Chairman Rabbit — wrote in March, China’s initial path to control the virus was born of necessity and proved correct. “The question is, what’s next?”

Authors: Chang Shu, Eric Zhu, Sam Fazeli, Tom Orlik, Bloomberg

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