China Abandons
Zero-Covid Policy Nov/Dec 2022

Since the first notified case of the novel coronavirus strain in Wuhan at the end of December 2019, the UN World Health Organisation (WHO) estimates that there have been 646m cases worldwide and 6.6m deaths attributable to the disease. However conservative these estimates, it is a far cry from the effects of the 1918 Spanish Flu pandemic which infected a third of the world’s then population and is thought to have killed anything between 17m and 100m souls. But the “past is another country”, and the Covid-19 pandemic has been devastating.

China quickly reacted to the outbreak with a three-month lock-down and effective blockade of the source city. The WHO at the time commended the move to lock down 11m people in Wuhan (and then a total 57m in Hubei province) as a commitment to contain the outbreak, even though it would not have recommended it, calling it “unprecedented in public health history”. In March 2020 China closed its borders to foreign visitors.

This reaction from the Chinese state was entirely within the terms of its 1989 law on the prevention of transmission of infectious diseases (amended after the 2004 SARS outbreak), This provided the framework for draconian measures of enforced quarantine and blockade in the case of an outbreak of a Class A (bubonic plague, cholera) or Class B diseases (SARS, anthrax, AIDS, typhoid, and viral hepatitis — and Covid-19). Their categorisation of Class C diseases cheerfully includes influenza, leprosy, mumps, and bilharzia.

These types of draconian containment measures have been used throughout the country since then, and over the past three years the Peoples' Rebublic of China has maintained a strict zero-Covid policy.

In one sense the policy has worked. Over this time China has officially suffered a total only 1.49m confirmed cases and 5,500 deaths from Covid-19. Per head of population this works out as 1,042 cases per million (compared with eg 291,000 per million in the USA and 555,000 in France) and 3.7 deaths per million (compared with eg 3,200 in Brazil, the USA or the UK, 5,600 in Bulgaria and 6,300 in Peru).

Gradually through 2021 and increasingly through 2022, the rest of the world has been opening up from their respective (and somewhat less draconian) versions of disease prevention, and borders have once again been opening to travel. Not so for China.

In March, China encountered a significant spike in positive tests for the disease (as shown in the chart) — although 90% of those testing positive were said to be asymptomatic. True to the zero-Covid policy the country put in place a stringent lockdown in Shanghai (with its population of a mere 25m) limiting movement, providing for forced testing and state controlled quarantine. This lasted three months.

Since then reported cases had averaged around 1,000 a day. Another wave of cases started in November. This time the spike topped 40,000 cases a day, and Chinese officials reiterated the commitment to the zero-Covid strategy.

However, at the end of November, civilian protests erupted in Ürümqi, the regional capital of the far west Xinjiang region, following a fire in a residential building in which ten people died. There were suggestions that the covid restrictions were a factor in the death toll (Ürümqi’s 4m inhabitants had been in lockdown for the previous three months). The unrest spread to Shanghai, Wuhan and Beijing.

Four days later, the Chinese Government started relaxing the severest of curbs — eg allowing people who test positive to quarantine at home rather than marching them, their contacts and their contacts' contacts into state run quarantine camps; allowing lateral flow tests in most circumstances where a test result be needed (but keeping PCR tests for such as schools, hospitals and nursing homes).

Testing stations have been dismantled. November’s surge in the official data of positive tests has fallen.

In one sense the zero-covid policy may have been a success. But it leaves China exposed. The rate of full vaccination among the over-65s, and particularly the over-80s, is said to be low. It has used its home grown Sinovac and Sinopharm “inactivated” vaccines which some say may be less effective than the mRNA based western vaccines. It does not have as large a corpus of people who have both been vaccinated and have had the disease, perhaps making it more difficult to transit towards an endemic state from pandemic.

On top of that the country has been criticised for not preparing an exit strategy. Some observers cite a relatively low number of ICU beds in its hospitals, the lack of community health facilities and the low vaccination rates with concern, and suggest that the country’s abandoning the zero-covid policy, will see a massive wave of serious infections (and deaths). Unofficial reports indicate that the country is currently going through a massive wave of infections, hospitalisations and deaths. Next year’s Lunar New Year “Travel Rush” (the world’s largest human annual migration) starts on January 17th. It could help push the wave to a huge peak. Some external models suggest that peak could result in 1-2m deaths. Official data is scant.

For the sake of the
Economy

China has been the growth engine for the world for many years, but has been seeing its rate of growth gradually declining from the 10% seen in the 2000s as its economy matures. The Financial Times suggested that the main reasons for abandoning the zero-Covid policy were economic, rather than a reaction to popular protest. It highlighted that the new measures announced by the State Council were “foreshadowed by a meeting of the Chinese Communist party’s politburo that emphasised the importance of stabilising the economy rather than the battle against Covid-19”.

The impact from the pandemic in 2020 had pushed the PRC’s annual economic growth rate to a mere 2% (see chart) — the worst year-on-year increase in real GDP for forty years. There had been a rebound in 2021 helped by the world’s stay-at-home consumer boom, and the country had initially set a target for growth in 2022 of over 5.5%. But the impact of the surge of reported cases in the Spring, combined with lockdowns of cities (and factories), let alone the impending recession in industrialised nations put paid to that. In the first nine months of 2022 the economy expanded by only 3%, well below target, and In November, the country reported its worst trade data for many months with a 9% year-on-year fall in exports and a 10% decline in imports. The IMF recently allocated a forecast for GDP growth of only 3.2% this year, rising to 4.4% in each of the next two — well down on the average of 6.5% annual growth achieved in the latter half of the 2010s.

But China’s growth rate should continue to slow. Its population is aging — 20% are over the age of 60, a ratio expected to reach 30% over the next decade, and the working age population is on track to contract at an average rate of nearly 1% a year in the coming decades. The fertility rate of 1.15 children per woman is well below the replacement rate of 2.1, despite the relaxation of the one-child policy imposed in 1980 (amended in 2016 to allow two, and then three in 2021); and the population is out of balance — 15% more boys are born than girls.

The total population is expected to start declining from 2023 (if it hasn’t already started). And the UN expects that next year India will overtake China as the most populous nation on earth forecasting its population to exceed 1,426m (on 1 July 2023, according to the Hindustani Times).

President Xi’s implicit targets for a 5% annual increase in GDP (to fulfill the goal of doubling the size of the economy by 2035) may be increasingly difficult to achieve, and the PRC needs its populace to have the freedom to go out and spend.

China’s reopening is vital for air travel

In hand with its economic development over recent decades China’s impact on air transport has been substantial.

Between 2009 and 2019 the number of passengers carried by the country’s airlines increased by nearly three fold — exhibiting a compound annual growth rate of 11.2%, adding 430m passengers and accounting for 20% of the of the total growth in world passenger numbers over the period.

The domestic market accounted for 78% of the total. Foreign airlines were able to access the growing international demand, and over the same decade international traffic flows to and from China in RPK terms grew by an average annual 11% — and by 15% a year to SE Asia.

Some countries in the region over the period developed a dependence on the high spending Chinese visitors for their in-bound tourism industries.

Japan, for example, has been keen on developing incoming tourism in the face of a declining population and stagnating economy. In 2010 there were 8.6m tourist arrivals into Japan. By 2019 this had increased to 31.9m, representing an average growth rate of 16% a year (nearly three times the rate of growth in the previous decade). Visitors from China in 2010 totalled 1.4m, 4% of the total. By 2019 this had grown to 9.6m (30% of the total). with a 24% compound annual growth rate.

Thailand, with a slightly larger tourism market, had an estimated 12m of its 40m pre-pandemic incoming visitors from China.

Korea too benefits from tourists from its close neighbour. In 2019 Chinese visitors accounted for 34% of inbound tourists with 6m visitors. (In 2016 the numbers had been higher with 8m visitors — 47% of the total — but then China had punished South Korea in 2017 by boycotting its tourism industry in retaliation over Seoul’s decision to install a US-made anti-missile system).

In the animated chart we show the development of seat capacity in terms of destination by country and density of traffic flows within North and SE Asia over time between 2010 and 2022 exemplifying China’s importance to the region.

International travel to and from China has been severely curtailed over the past two years, with passenger numbers only 2% of pre-pandemic levels. Early on the CAAC introduced a “five-one” policy allowing mainland carriers to fly just one flight a week on one route to any country and foreign airlines to operate just one flight a week to China. Sales of outbound group and inclusive tours have been banned.

The CAAC tweaked the policy with a “circuit breaker”: flight suspensions or capacity caps for airlines if a certain number of passengers were found to have been infected with Covid-19, or adding flights if an airline were not to import any cases.

In September, however, the CAAC doubled the permitted number of international flights for this winter’s season, and dismantled the circuit breaker. It also allowed inbound visitors (but only on escorted tours) to controlled “attractions” close to border entry points.

But travellers were still subject to pre-flight testing requirements, the “5+3” quarantine rules (five days' solitary confinement in a state mandated hotel — at the traveller’s cost — followed by three days' self-quarantine at home or another hotel), while in-bound visas were severely limited and out-bound passports and visas curtailed.

These severe border restrictions have now also been scrapped. Stating that Covid-19 has now been downgraded to a categry “B” disease for containment measures China stated it would no longer publish case numbers. From the 8th January it will remove the limits on international flights, the requirement for quarantine on arrival (although negative PCR pre-flight tests will still be required) and will once again take applications for passports for outbound travel.

Within half an hour of the announcement that China’s borders would reopen, data from travel site Trip.com showed searches for popular destinations (Hong Kong, Macau, Japan, South Korea) had increased ten-fold year-on-year.

This sudden reopening should come as a relief for airlines and tourist destinations, particularly in East Asia. But the recovery in traffic may be gradual. Concerned about the lack of transparent data from the Chinese authorities swathes of countries, from Japan to Italy and the USA, have stated plans for the resumption of testing passengers from China — with Japan, particularly worried that it could see a wave of imported cases, ironically suggesting it will impose quarantine on those who test positive.

But there is undoubted pent-up demand. The 155m Chinese who took trips abroad in 2019 have missed out on foreign holidays for three years.