May 17, 2022

China Paying a Price for Xi's Zero-COVID-19 Policy

The political costs are not clear. Nothing political in China is. But China’s recent trade figures show China is already paying a real price for Chinese Communist Party General Secretary Xi Jinping’s authoritarian approach to managing the latest COVID-19 outbreak. Heritage Research Fellow and Economist Min-Hua Chiang writes that how Xi deals with it going forward will have a major economic impact, not only on China, but on the world.

China’s latest official figure shows its export growth in April decelerated to 4% (year-on-year) from 24% in January. The growth rate of its imports in April declined even more significantly to -0.03% from 20% in January.

China’s trade profile is mostly a matter of importing raw materials, intermediate industrial goods, and machinery for manufacturing and final assembly. It then exports the final products to the world. Hence, the negative growth of imports in March (-0.12%) have already implied the waning exports in April. As the import growth remained sluggish in April, China’s exports in May are likely to remain lackluster.

The No. 1 culprit? Xi’s COVID-19-related lockdown of several Chinese cities since March.

The cities under lockdown included important industrial and trade hubs such as Shanghai and Shenzhen. The two cities combined accounted for over 20% of China’s total trade. Overall, cities under lockdown accounted for nearly one-quarter of the total population and over 40% of China’s economic output. So far, there is no sign of relaxing the COVID-19 restrictions after nearly two months of restraints.

China’s trade prospect in the following months is less likely to be optimistic. Omicron is more contagious than the previous variants. The negative effect on trade would remain if the government continued to insist on the restriction of people’s movement.

Ironically, if the government relaxed the COVID-19 rules, the country would risk having more confirmed cases and potentially overwhelm its hospital system. The daily economic operation, external trade, and investment would be further and severely impacted as a result.

The impact from China’s continuous lockdown on the regional supply chain network could be significant. China has been the largest exporter and second-largest importer in the world since 2009. It is also a key supplier of industrial goods with middle to low technology intensity to developing countries in the region and an important producer and exporter for final consumption goods. The continuous lockdown of China’s cities would therefore impact the supply chain network in the region as well as exports of final goods to the world market.

Trade is also one of the key components in propelling China’s economic growth. The fewer confirmed cases were used to show China’s better management of COVID-19 outbreak, compared to many Western countries. However, in the face of the endless and highly transmissible variants, it is increasingly difficult to keep low the number of confirmed cases and death rates in China.

Add to this the demand side problem and Xi’s zero-COVID-19 policy is unlikely to be sustainable.

China is being pulled in two directions. Political imperatives around the approaching Party Congress are encouraging Xi to stick to his draconian COVID-19 policy. Economic realities are pulling it toward adjustment. How China deals with this dilemma will have a major impact on the global economy going forward.

COVID-19 Conditions Deteriorating Rapidly in North Korea

After two years of denial, North Korea admitted its first COVID-19 case on May 12 and imposed a nationwide lockdown in response. Heritage Senior Research Fellow Bruce Klingner writes that the regime’s public admission and draconian response suggests the situation was too severe to remain concealed. Within a day, Pyongyang revealed the epidemic had been raging for weeks and already affected hundreds of thousands of people.

North Korea is one of only two nations in the world to have not inoculated any of its citizens. The country’s rudimentary heath care system, emaciated population, and lack of medical supplies make it dangerously vulnerable to a dire pandemic crisis.

The international community will likely reiterate offers of assistance, but the regime rejected all previous proposals. Any distribution of international aid would be hampered the departure in March 2021 of all nongovernment organizations from North Korea.

At a May 12 Politburo meeting, North Korean leader Kim Jong Un discussed the “most serious state emergency incident” arising from an unspecified number of residents of Pyongyang being detected with COVID-19 omicron variant BA.2. Kim directed the “top emergency epidemic prevention” be implemented. Measures include a nationwide lockdown of all cities and counties to isolate “each working unit, production unit and living unit from each other.” Kim was seen on North Korean media wearing a mask, possibly for the first time. A day later, North Korea revealed an unidentified fever had “explosively spread nationwide” since late April, affecting 350,000 people, of whom 162,000 had recovered. On May 12 alone, 18,000 new cases were identified nationwide. There have been six deaths, one of which was identified as the COVID-19 omicron variant, and at least 187,000 people remain in isolation. Given the low level of testing in North Korea, the extent of the outbreak is likely far higher.

North Korea has repeatedly rejected offers by the United States and the international community of COVID-19 vaccines as well as humanitarian, food, and medical assistance. There are no U.N. or U.S. sanctions on food, medicine, or humanitarian assistance. All U.N. resolutions and U.S. laws have language highlighting that any punitive measures do not cover those items.

The U.N. sanctions committee emphasized that U.N. sanctions “are not intended to bear a negative impact on the people” of North Korea. Some sanctions, however, prohibit certain high-tech equipment that could potentially be of use to the nuclear and missile programs. The U.N. has approved exemptions so diagnostic and medical equipment can be transported into North Korea, but the shipments were hampered by the regime’s strict quarantine restrictions.

It is unknown if the current state of emergency will lead Pyongyang to call for international support. The United States, in conjunction with international partners, should repeat their offers of medical and humanitarian assistance. Washington should urge the U.N. sanctions committee to expeditiously process requests for sanctions exemptions to ensure humanitarian assistance is not inadvertently blocked.

The U.S. and other nations should be willing to provide immediate aid to ameliorate medical or natural disasters that impact the populace while concurrently refraining from large-scale assistance that benefits the regime’s prioritization of the military over the needs of its citizens. Large-scale provision of food should be contingent on strict monitoring requirements.

The North Korean regime is responsible for the appalling condition of the repressed people of the country. Prioritizing military spending, including the prohibited nuclear and missile programs, along with disastrous socialist economic policies, have decimated the North Korea’s ability to provide for its citizens.

The national lockdown will further exacerbate the country’s economic problems and food shortages. Kim’s repeated rejection of COVID-19 assistance may have doomed his populace to needless suffering and death.