Zero-COVID’s Long Tail

By Business & Finance
24 November 2023

Although it has been almost a year since China rescinded its strict zero-COVID policy and allowed normal economic activity to resume, the costs of the country’s pandemic experience are still being tallied. As job and pay cuts continue alongside slowing economic growth, younger generations are confronting a disconcerting new reality.

By Nancy Qian

SHANGHAI – For three years, China’s zero-COVID policy consistently received high-profile media coverage from the Chinese and the international press. During the first phase of the pandemic, China’s mass mobilization of resources and strict region-wide lockdowns were seen as highly effective – a testament to the advantages of autocratic power. But after vaccines arrived and Western countries resumed normal economic activities, China’s ongoing restrictions became a source of growing concern.

Then, when the restrictions were finally lifted in late 2022, the press coverage dissipated, and the official Chinese position was silence. Just as the Chinese people were starting to regain their economic footing and reckon with the emotional fallout of the previous three years, the world stopped paying attention.

Yet the legacy of zero-COVID will not soon be forgotten. For three years, nearly every city was under various forms of lockdown, with as many as 370 million people isolated in their homes at the policy’s peak. Shanghai, China’s economic hub, was among the cities subjected to the most severe lockdowns. When it was shuttered for two months in 2022, economists worried that national GDP would fall by several percentage points.

Today, the pain is felt more broadly, with remuneration and jobs being cut across the urban economy. Salaries in typically high-paying tech and finance jobs have been slashed by 40%, and even civil-service jobs, which pay less but are considered more stable, are experiencing substantial pay cuts. Such reductions are especially painful in a country with an already low baseline income level. In 2022, urban China’s median per capita disposable income (after taxes) was $6,224, compared to $55,832 in the United States. (Of course, prices are higher in the US; but not by a factor of 8.97.)

Worse, the mass layoffs that started in the Chinese tech sector in 2021 have increased over time, with more than 200,000 tech jobs eliminated just between July 2021 and March 2022. And that figure does not account for the knock-on effects in closely connected sectors such as finance or law, let alone the broader effect on consumption and wealth accumulation, where these jobs have a disproportionally large impact.

China’s much poorer rural areas have arguably suffered even more. In 2022, rural per capita disposable income was a mere $2,777. Generally, rural households supplement their agricultural income by working as migrant laborers in cities, opening their hometowns to tourists from urban areas or abroad, and selling high-value commodities like tea or flowers in urban markets. But during the zero-COVID period, rural villages were cut off from urban markets and tourists, leaving their inhabitants to eke out a livelihood as subsistence farmers.

Making matters worse, zero-COVID’s demands on public spending deepened local government debt, and now the country’s enormous real-estate sector is in crisis, with overall growth continuing to slow. These economic problems come at a time of acute personal suffering for many Chinese. Millions of migrant workers remain traumatized from living in dormitories or apartments without kitchens, surviving on instant noodles for weeks and months at a time. The full costs of COVID and the lockdowns are still being tallied. While the youth suicide rate ticked up notably in the US during the pandemic, it doubled in China between 2019 and 2021.

When the government did finally finish lifting zero-COVID restrictions, the vaccination rate was still low among the elderly, and there was little time for hospitals and health workers to prepare for the one billion infections that soon followed. Given the sheer size of that figure, China did better than many expected. The virus did not mutate into a more virulent form, and the relatively less effective Chinese vaccine still protected the bulk of the population from serious illness or death. An estimated two million people died in the two months after the end of zero-COVID, but that means China (with its 1.4 billion people) still had a much lower mortality rate than the US.

China’s bigger problem was that all these deaths came suddenly, thus overwhelming funeral homes and forcing families to conduct expedient cremations and burials without traditional grieving practices. These experiences, combined with the official silence on the subject, have left a mute but palpable sense of collective pain.

Public reactions to these challenges have been mixed. Not surprisingly, young people who only ever knew China’s pre-pandemic “economic miracle” are the most dispirited. Youth unemployment was at a record high of 21.3% this past June, before China stopped releasing such data altogether. Now, many younger Chinese simply want to give up (“tang ping”) or leave the labor force to become “full-time children.”

The older generation is more stoic. Most of those born before the 1990s remember poverty. In the 1970s and 1980s, China was one of the world’s poorest countries, and a single bad harvest could mean starvation in the countryside. In 1978, the average city dweller had a mere 3.6 square meters (39 square feet) of living space. Older Chinese can endure new hardships knowing that their children will still be better off than they were at the same age – no matter what happens.

Some are even cautiously optimistic following the shift in the tone of US-China relations. After years of rising tensions, recent diplomacy – including US Secretary of State Antony Blinken’s visit to China in June, and Chinese President Xi Jinping’s current visit to the US – signals a return to stability, even if not a fundamental improvement in this most important of international relationships. Stability can restore domestic and international investors’ confidence in the Chinese economy, thereby generating more tourism, trade, jobs, and pay hikes. There is hope yet for more Chinese to escape poverty and resume a normal life.

© Project Syndicate 1995–2023

About the author: Nancy Qian, Professor of Economics at Northwestern University, is Co-Director of Northwestern University’s Global Poverty Research Lab and Founding Director of China Econ Lab.




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