The Sick Man of Asia

While China’s exit from its zero-COVID policy was never going to be easy, it was widely viewed as necessary to reinvigorate the beleaguered economy. But the speed with which the government has abandoned three years of tight restrictions has left the country’s health-care system – and its economy – reeling.

According to former German Foreign Minister and Vice Chancellor Joschka Fischer, the zero-COVID policy was always “fatally flawed,” as it “required a suspension of the social contract between the [Communist Party of China] and the people.” Chinese President Xi Jinping “wanted to use the pandemic to demonstrate the superiority of the Chinese system over the declining West,” but, with GDP growth slowing sharply, ended up demonstrating the system’s fragility.

China’s situation may get worse before it gets better. As Northwestern University’s Nancy Qian notes, “key features of China’s social and economic structure make it especially difficult for ordinary households to grapple with the virus.” So, while “there is little doubt that returning to normalcy is the right direction for China, the days and weeks ahead are going to be exceedingly difficult and full of sorrows.”

Moreover, as Columbia University’s Shang-Jin Wei observes, there is no guarantee that China’s economy will “bounce back” after the zero-COVID exit. “China must contend with several challenges, including declining confidence among firms and households about their future incomes in the short run, insufficient productivity growth in the medium run, and an unfavorable demographic transition in the long run.”

Yale’s Stephen S. Roach highlights a major barrier to confronting these challenges: Xi’s “increased emphasis on security, power, and control undermines productivity at a time when China needs it the most.” As a result, what was until recently “the world’s greatest growth story” is now in jeopardy.

What does this mean for China’s leading rival? Harvard’s Joseph S. Nye, Jr., notes that the United States has “at least five long-term advantages,” ranging from geography to technology. But just as the US must not “succumb to hysteria about China’s rise,” it must resist “complacency about [the country’s] ‘peak.’” Otherwise, the US could “play its cards poorly” – and the balance could shift in China’s favor.