China’s Zero-Covid Policy - a Real Threat for Manufacturers and Supply Chains

China’s handling of Covid-19 has been anything but lax. While many Western nations introduced half measures that failed to contain viral spreads, China maintained a stringent zero-Covid policy. While the severity of the restrictions China imposed on its citizens seemed uncomfortably harsh to people in many other nations, they certainly didn’t let the virus upset its overall society and economy too much. At least, not until now.

Supply Chain Disruptions Are Being Prolonged

According to an economist from Moody’s Analytics, China’s strict zero-Covid policy is prolonging supply chain disruptions. This policy entails strict quarantines and travel restrictions, both within cities and across entire countries, to control outbreaks where even one case has been reported.

These measures have greatly affected manufacturing and shipping operations across the world and have exacerbated the supply chain crisis. The heightened infectiousness of the Omicron variant has been especially problematic. More people quarantined means fewer people working in factories, fewer people transporting goods to ports, fewer people to load goods on to shipping containers, and so on. China is the world’s second largest economy and given their weight and importance on the global stage, this policy could have huge ramifications.

How—and Will—China Live With Covid?

Many media personalities, politicians, and businesspeople have said that we as a society must learn to “live with Covid.” However, it’s not clear what this means. For many, it seems to mean ditching restrictions and hoping for the best. But China is unlikely to adopt such an approach.

Nearly 88% of Chinese citizens are fully vaccinated, according to Our World in Data. This is much higher than the global rate of about 58%, but still lower than what many epidemiologists are comfortable with. Perhaps equally important to government officials in China is the optics of the situation. They were once able to tout their zero-Covid policy as a great achievement, and with some justification. But as this policy continues to hinder economic growth, and in a country where so many are vaccinated and thus unlikely to suffer from severe symptoms from the virus, can they really afford to keep this policy in place?

Only time will tell, and the extent to which the zero-Covid policy is impeding manufacturing and trade is debatable. Some don’t think the effect is that significant, but it’s impossible to say for sure at the moment. Nevertheless, Goldman Sachs cut its 2022 forecast for China’s economic growth from 4.8% to 4.3% this past January. Nobody in China will like those numbers.

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