China’s Covid lockdowns evoke memories of a planned economy

Yang Wenhui should be a proud example of China’s rise from economic rubble to global powerhouse.

When he grew up poor, he ate so much cabbage that he did not touch it again for many years. He worked as a farmer and construction worker before joining the country’s emerging logistics industry. In 2003, he started his own freight logistics company, which hit gold when online shopping took off in the 2010s and products moved rapidly between provinces.

Then the Omicron variant began to spread in China. In the government’s zealous pursuit of its “zero Covid” policy, dozens of cities along the 1,300 miles of highway between the capital Beijing and southern Guangdong province introduced its main freight route, travel restrictions and roadblocks. Many hauliers were stranded. Shipping prices rose by 20 percent in a matter of weeks.

“I’ve been in the logistics business for 28 years,” said Mr. Yang, 47, in an interview. “But I’ve never seen such a mess. There were several emergencies to deal with.” He estimates he lost tens of thousands of dollars in March.

China’s economy is a giant, sophisticated machine that requires several parts to work together. Behind its 1.4 billion consumers are 150 million registered companies that provide jobs, food and everything that makes the machine hum.

Now, in the name of pandemic control, the Chinese government is interfering in the economy in ways the country has not seen in decades, creating chaos for business.

Business people are worried that the country will return to a planned economy, and the major Covid disruptions could last until after a Communist Party congress late in the year, when China’s top leader, Xi Jinping, is expected to secure a third term. An increase in cases in Beijing also exacerbates global fears, leading to a sell-off of shares due to concerns that China’s economy could be hit again.

In the last two years, many governments around the world have sought a balance between controlling the pandemic and keeping businesses open. China was largely successful until recently, when Omicron, a milder, if more contagious variant, caused a serious outbreak. As much of the world opens up, the country doubles its zero-covid policy, making low death and infection rates central to its legitimacy.

Since March, China has reported about half a million Covid infections and 48 deaths up to 22 April.

About 344 million people, or a quarter of the country’s population, are under some kind of lockdown, according to investment bank Nomura. The shutdowns have left China’s largest city, Shanghai, a metropolis of 25 million people, a ghost town; farmers in the Northeast Grain Reservoir gather during the spring planting season; and many factories, shops and restaurants across the country are suspending their operations.

The stringent measures put a heavy strain on the economy. Nationwide spending fell 3.5 percent in March, while restaurant spending fell 16 percent, according to official data.

“This not only makes it impossible for many private companies to survive, but it also accelerates outbound immigration and quickly dampens the willingness to invest,” said Zhiwu Chen, an economist at the University of Hong Kong. “Once people lose confidence in the country’s future, it will be extremely difficult for the economy to recover from the impact of zero Covid policies.”

Business owners and executives are complaining that the current disruptions are worse and more widespread than those in early 2020, when logistics, trade and industrial production in large parts of the country quickly returned to normal. At the time, the government’s digital surveillance systems to restrict the movement of vehicles and persons were less extensive.

The business community is waiting nervously to see if the government will apply the Shanghai lockdown model to other cities. The approach has a strong element of a planned economy, where the public sector controls business activities, rather than letting the market regulate supply and demand.

During the eruption, the Shanghai government changed commercial systems and tried to support 25 million people on its own. The results are familiar to Chinese at a certain age: scarcity of supplies and fungus formation in black markets.

Due to Covid restrictions, commercial trucks have difficulty delivering food and household items to Shanghai. Inside the city, only vehicles with passports are allowed on the road.

In the black market, some operators are willing to pay $ 2,000 for a day pass. The cost is then priced into the groceries they sell to the residents.

Some neighborhood committees only allow government-organized grocery distributions; others do not allow their residents to buy diapers, infant formula and toilet paper because they are not considered necessities. Elsewhere, fruit, beer and coffee are considered junk.

From the 1980s, China moved away from its planned economy because it left all the poor. It did not work in the former Soviet Union; it does not work in North Korea either.

In addition to the worrying ghost of the planned economy, the business community is also facing conflicting messages from the government. Prime Minister Li Keqiang and Beijing ministers have called on the authorities to balance pandemic control measures with a need to promote growth. The Ministry of Industry and Information Technology sent a working group to Shanghai to ensure that key companies and supply chains could resume operations.

But Mr Xi has not moved from his zero-Covid position. “Perseverance is victory,” he said on April 13. The state media, the province’s party secretaries and lower level officials all know who is in charge and eager to show their loyalty. Many local officials are escalating pandemic control measures so that they do not risk an outbreak that could jeopardize their positions.

Some factories in Shanghai, such as Tesla and some of its suppliers, have resumed production. But they must follow a set of complicated and expensive pandemic control measures, including creating what is called a closed circuit management system, where workers live on site and test regularly for the virus.

Not many companies are willing or able to do this. A senior employee of a major logistics company told me that they only have a few thousand delivery workers left at work in Shanghai because they lack the capacity to provide accommodation for so many workers. This is significantly lower than the more than 60,000 delivery workers that the company had in high seasons in the last few years.

The disruptions are especially difficult for smaller companies.

A truck driver who asked me to use only his last name, Zhao, has been stuck in his vehicle, unable to work, in a Shanghai suburb since March 28, when the district was locked. He, along with nearly 60 other hauliers, has been drinking from fire hoses, struggling to secure food and without a bathroom to wash up in.

He is losing sleep and wondering how he will cover his loans: about $ 2,000 a month for his truck and about $ 500 for mortgages while he continues to support his wife and their two children.

He told me he borrowed money from relatives and friends to pay off the loans this month. If he can not start work soon, he said, he will have to sell his truck next month.

The CEO of a high-flying consumer brand is also wondering how long her company’s cash can last. The company raised $ 100 million last year and had ambitious expansion plans, she said in an interview. But nearly a third of her company’s 150 retail stores had to close their doors in locked cities. Their online sales, which did not hurt in 2020, are now suffering because many cities are closing highway exits and stopping e-commerce supplies.

If the shutdowns are not eased before May 1, a public holiday in China, she will have to consider letting go of some of her 1,000 employees.

She and most of those I interviewed for this column asked for anonymity because private companies are easy and vulnerable targets of government reprisals.

John Ji, a property developer in Nanjing, Jiangsu Province, is excited about the shutdowns in Shanghai and other cities. He believes that many will lose their jobs and have difficulty paying home mortgages. When no one can afford housing, he asked, who will buy his apartments?

Mr. Ji also grew up poor. Before he turned 10, his staple was sweet potatoes; he only ate meat a few times a year.

“I’m worried about whether we should go back to a planned economy,” he told me. “If the economy keeps falling, we could become poor again.”

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