The End of Zero-COVID and the Start of China’s Economic Recovery

China is back on a pragmatic path, with the lifting of zero-COVID and property market policies that throttled domestic demand in 2022. COVID cases are likely to continue to rise in the coming months, but that is unlikely to disrupt progress towards living with the virus, and an economic recovery in the second half of 2023.

Why I’m Bullish

I’d like to explain why I’ve gone from being cautiously optimistic about Xi Jinping returning to a pragmatic path, to now being bullish on China: Xi Jinping has, in recent weeks, given clear signals that he is returning to a pragmatic approach to COVID, to the economy, and to relations with the United States.

COVID Pragmatism

The return to pragmatism began soon after the end of the Party Congress, when Xi’s third term as leader was formally confirmed. In a November 11 speech, he announced 20 measures on COVID mitigation designed to reduce obstacles to normal life.

Since that time, four important things have happened. First, most zero-COVID restrictions have been abandoned in most places in China. Routine testing is no longer required, and the government has ended the forced quarantine of people who have COVID but are not seriously ill.

Second, the end of zero-COVID has resulted in a large wave of COVID cases across the country. Because frequent, mandatory tests have largely ended, the official case count is no longer a useful metric. (This is similar to most countries, where people who test positive at home rarely report those results to the government.) Anecdotally, however, it is clear that COVID is sweeping across the country, including Beijing, where the Party leadership lives.

Third, this wave of cases does not appear to have resulted in a spike in serious illness. For the whole country, there were only 147 cases classified as “severe” on December 12. Since Xi’s November 11 speech, only nine deaths have been attributed to COVID. This may reflect that the current variant of the virus circulating in China is less dangerous than earlier iterations, and that the domestic vaccine is providing significant protection. There is, of course, a risk that the impact of the virus changes and the health care system is overwhelmed, but that is not happening at this time.

Fourth, the government has begun to ramp up its campaign to raise vaccination rates, especially for the elderly. This is important because although by late November, 90% of Chinese had received two shots (compared to 69% in the U.S. and 88% in the UK), only 58% of Chinese had received a third jab (compared to 53% in the U.S. and 70% in the UK). Moreover, about 25 million Chinese over the age of 60 had not received any jabs, and 58 million older Chinese needed a booster.