Last year, we wrote numerous articles about China’s failed Zero COVID policy and why it was horrible for an already-struggling world economy. Next week, on the 8th of January, China is finally opening up its borders after having had them closed to non-citizens for the preceding 1,016 days. Across almost three years, China has done an admirable job of keeping COVID at bay, yet the social and economic cost has been unprecedented in human history. Over 1.4 billion people have essentially been under varying degrees of house arrest for much of the last three years. Millions have been quarantined or forced to spend their days in “fever camps” full of people who have tested positive. Foreign businesspeople were kept from returning to their Chinese homes and businesses.
A Life Worth Living?
China’s great experiment forced its population to live a miserable existence, and this came at an unfathomable economic cost. The nation’s GDP, which has been roaring for decades, calmed down to a soft purr at 3% in 2022, down from the official target of 5.5%. Considering that China is known to inflate their numbers, investors have questioned whether that 3% is a valid figure. In November of 2022, industrial firms posted 9% profit losses year over year. Very few Chinese citizens have been able to travel internationally, and very few international travellers have come to China in the last three years. When Zero COVID was announced, almost no one expected Beijing to uphold the policy for so long. The government held it in place for so long that we were quite shocked when they suddenly reversed course, announcing the easing of restrictions in December. Instead of continued economic constraint, the world is now expecting a strong economic rebound from China, which will most certainly impact sluggish economies throughout the world.
The Catch
China did such a good job holding off COVID via strict lockdowns that the population has not adapted to it. As of the time of writing, roughly 38 million people are catching COVID every day in China. Understandably, hospitals and crematoriums are struggling to keep up, and there will inevitably be worker productivity issues if people are calling in sick. Many experts believe that China has long delayed the inevitable COVID crash, but that the crash will come in the first few months of opening back up. The country will experience the COVID waves that the rest of the world experienced over the last three years. Those same experts that predict the waves and contractions due to closures also believe that much of the pain will be concentrated in Q1 2023, and as 2023 progresses, the nation’s economy will recover sharply.
When that recovery comes, China’s demand for global goods, services, and commodities will also recover. For example, China is consuming significantly less oil than it did before the pandemic; with an open economy, those consumption levels cannot continue. HSBC has predicted that in Q1 2024, China will see a 10% year over year GDP increase. This will have ramifications, both positive and negative ones, throughout the world economy.