China’s Covid Surge, With Yanzhong Huang and Zongyuan Zoe Liu

LINDSAY:
Welcome to The President's Inbox, a CFR podcast about the foreign policy challenges facing the United States. I'm Jim Lindsay, director of Studies at the Council on Foreign Relations. This week's topic is China's COVID surge.

With me to discuss the consequences of China's decision to end its zero-COVID policy are Yanzhong Huang, and Zongyuan Zoe Liu. Yanzhong is a senior fellow for global health here at the Council on Foreign Relations. He is also a professor and director of global health Studies at Seton Hall University's School of Diplomacy and International Relations. He has written widely on global health issues. His most recent book is Toxic Politics: China's Environmental Health Crisis and Its Challenge to the Chinese State. Last month, he wrote a piece for the New York Times entitled, "China's Struggle with COVID is Just Beginning."

Zoe is a fellow for international political economy at CFR, she has written extensively on international political economy, global financial markets, sovereign wealth funds, supply chains of critical minerals and development finance. She is the author of the book Can BRICS De-dollarize the Global Financial System? Back in November, she wrote a piece for Foreign Policy titled, "Zero COVID is the Least of Xi's Economic Problems." Yanzhong and Zoe, thanks for joining me.

HUANG:
Thanks for having me, Jim.

LIU:
Thank you very much for having me, Jim.

LINDSAY:
A big topic here I want to discuss with both of you today. Obviously, what is happening in China is very big news and I was hoping to be, Yanzhong, since you follow the COVID situation in China very closely, if you can give us sort of a status report on where things stand in China in terms of the spread of COVID-19?

HUANG:
Well, thank you, Jim. I think since the beginning of the reopening, that was December 7th, 2022, we have seen this unbridled spread of COVID-19 in China. The speed and the scale of the spread is unprecedented in public health history, I would say, this is no overstatement. According to the estimate of some epidemiologists, so far, many Chinese major cities, more than 80 percent of the population, have been infected. In China central Henan province, which has approximately 100 million people, nearly 90 percent of the population have been infected.

And my estimate is that thus far at least 50 percent of the Chinese population have been infected. And in the major cities, the viral wave seems to have peaked based on the anecdotal evidence and also some of the big data like the subway rideship number, it seems that life is back to normal, but the number of severe cases and death continue to increase. And in the meantime, the virus is quickly spreading in the countryside, in part because the migrant workers are returning to their hometowns for the Lunar New Year celebration.

So we don't know the exact number of death in China because the government, A) no longer provide the data, actually, they're providing the data, but the number is very small so far. Actually, over the past month, only 39 deaths in the entire country? But apparently, that was because they have adopted a very narrow definition of what COVID death comes. And in the meantime it seems that they're discouraging doctors from reporting COVID death. According to Affinity, a British research firm, since December 1st, 270,000 people in China have died with COVID. They projected that by the end of April, 1.7 million people will die with COVID.

LINDSAY:
Can I draw you out a little bit on that, Yanzhong? We're going to be talking a lot of statistics but I don't want to lose sight of the very real human element here. I mean, certainly for Americans and Europeans listening to this podcast, they have memories of what it was like in the first half of 2020 when the coronavirus surged through populations, and the stress it put on hospitals, on the healthcare system more broadly. This obviously is putting a tremendous burden on the Chinese healthcare system, but both you and Zoe have family and friends back in China. First off, how are they all doing?

HUANG:
Well, my dad is in China. He's doing okay. He told me, well, actually, I encouraged him to take a booster shot before the viral wave came, and actually, before China reopened. And I warn him and my relatives in China, said that, "You guys needs to prepare for the big viral wave that is going to come very soon." So better stock medicine. And in fact, I also tried to get the Indian version of PAXLOVID sent to him from Hong Kong, which cost me like 2300 yuan, about 300 U.S. dollars, which is not exactly legal, but this is something I can do given that the PAXLOVID is mostly unacceptable in Chinese countryside.

LINDSAY:
Well, I'm going to be hoping that the Chinese authorities are not listening to this podcast to know that you may have violated regulations. But Zoe, I want to ask you, what are you hearing from family and friends?

LIU:
Yeah, thank you very much Jim for asking, I appreciate that. So one thing that I hear from my peers, the one-child generation, is that on the one hand they are very worried about the health of their family, their parents. And then on the other hand, they had to take care of themselves and take care of their children, many of whom could not go to kindergartens or elementary school. And many of my peers, many of whom I went to high school with, they reported two very interesting phenomenon. One is, "We are very confused." Confused in the sense that, well, it used to be the case that we cannot go to work because of COVID symptoms, and now everybody's encouraged to go to work as long as you are not a severe symptom. In other words-

LINDSAY:
But you can still be infectious even if you're not severely ill.

LIU:
Exactly. As long as you are not in severe condition, as long as you can perform your duty, you are encouraged and in many ways required to go to work. And then another phenomenon I have observed and heard from friends is that younger people, in my age, they are suffering from severe conditions and there have also been several cases reported that young people died from COVID.

LINDSAY:
So let me ask you about an issue that Yanzhong mentioned, which is the upcoming Lunar New Year, Chinese New Year begins on Sunday, January 22nd. Yanzhong mentioned that this leads a lot of people to return home, a lot of migrants leaving big cities which have the most robust healthcare in all of China, going to rural towns and villages much less in the way of healthcare. Can you first give us a sense of how Lunar New Year, Chinese New Year works for people who've never been in China when it has happened? I mean, it's a large movement of people, correct?

LIU:
Yes, Jim. First of all, thank you for mentioning the Chinese Lunar New Year.

LINDSAY:
Oh, and I should wish you happy upcoming Chinese New Year, same to you, Yanzhong.

LIU:
Yes, thank you.

HUANG:
It's the year of the rabbit.

LIU:
Yes, year of rabbit.

LINDSAY:
Okay. Year of the rabbit, good to know.

LIU:
And I am a rabbit, so it's my year.

LINDSAY:
Well, congratulations.

LIU:
Thank you. In normal circumstances, before pandemic, this usually is a time of excitement because millions of migrant workers who have been separated from their families for the entire year, now it's the time for them to go back to the villages, to the towns, to get family reunion. And this year, it could be very different in the sense that on the one hand, people living in big cities, like Beijing or Shanghai, even it means that they have a solid job there, whether they work for SOE, whether they work for the government-

LINDSAY:
State-operated enterprise.

LIU:
State owned enterprise. Yes. So for those folks, they are afraid of going back to their hometown because it means there is a increased risk of expose their elderly to the virus. And then on the other hand, for migrant workers who struggle, who manage to go back to the rural area, it means the COVID virus would inevitably be brought back, which goes back to Yanzhong's earlier point. Rural area where China's healthcare system is extremely vulnerable, access to medical care is not as easy as in bigger cities, that means more people probably are going to suffer and even die. And those may not necessarily be reported in government statistics.

LINDSAY:
Well, Yanzhong, that leads me to ask the question of you, why did the government in China open up after nearly three years of pretty a Draconian series of lockdowns? It was almost 180-degree switch from lockdowns to let-her-rip. But also, why do it in December? Why not wait until after the Lunar New Year, after this mass migration, people going back home to see parents and family when you wouldn't have had as much of an opportunity to carry the virus across the country?

HUANG:
Well, that is a great question. I think what happened in that the first week of December that led President Xi to basically change his mind, the reverse course by reopening China, I think remains a mystery because until, to my knowledge, November 29th, you still have the peoples daily talking about the sticking to zero-COVID, and China's COVID czar, the Vice Premier Sun Chunlan, she was still talking about, in her inspection too in Chongqing launching a decisive war on COVID.

So really, they made this change happened in the first week of December, even though at that time we know zero-COVID policy is no longer sustainable in terms of its inability to contain the spread of the virus, in terms of rising social discontent, in terms of the impact on the economy. But I think eventually that was a political decision that we don't know what make President Xi change his mind, but apparently, the social protests in late November was a trigger of the policy shift.

But the question of course is whether that, the policy u-turn, was a reasonable move, right? Given that this potential rising wave, viral wave, if you consider also the flu and potential RSV, that could make situation even worse. But the government public health experts just justified that move, said, "This is the calculated decision," in a way, and they made that move when the risk was the lowest.

LINDSAY:
So Zoe, I have to ask you, as you were seeing protests particularly in Shanghai in October into November, were you surprised by what you saw, either in terms of where the protests took place or the extent to which ordinary Chinese seem to be saying, "Enough already"?

LIU:
That's a great question, Jim. Honestly speaking, I myself was surprised and I'm still surprised, but if we think about the question from the perspective of whether this is very unusual, I would say yes and no. Yes in the sense that we haven't seen large-scale protests like this since China joined the WTO, but it's also-

LINDSAY:
Back in 2001.

LIU:
Right. But it is also not unprecedented in the sense that we all know what happened during Tiananmen back in 1989. So from that perspective, I think for us observing outside of China from the scattered information we gathered from social media, we cannot have a precise understanding of how many people participated into the protest and who are those people. However, I think the reported information about university students, people from Xinjiang to Chongqing, Chengdu and Shanghai and Beijing, I would have to say it's pretty impressive.

LINDSAY:
Well, it certainly was. I take it from Yanzhong's commentary that it definitely caught the attention of President Xi. But again, Yanzhong, that takes us back to a conversation we had, we were both at a conference in Indonesia at the end of October, beginning of November, with a number of people, and what I heard in that venue was people were talking about China was working on its own mRNA vaccine, it's undergoing trial in Indonesia, that they hoped to get data on that the Chinese government would presumably then, if the mRNA vaccine created at home worked then introduce it to the Chinese public. And at that point there would be an opening, but that seems not to have happened, again because they decided to sort of open up everything beginning in December. 

But what is also striking is the Chinese government has not, as best I can tell, gone out of its way to try to get its hands on Western mRNA vaccines. Indeed, it appears that they have brushed aside offers to sell such vaccines to China at a time in which now there's a global glut of vaccines.

HUANG:
I think that's one of the most puzzling questions in China's COVID response, that why so adamant in terms of rejecting foreign vaccines, especially when you have their leading public health experts recognize the high quality, the effectiveness of the mRNA vaccines. Ironically, it has something to do with their zero-COVID policy itself, when the local governments and central government realized these mass PCR testing, quarantine and snap lockdowns are more efficient in terms of containing the spread of the virus and cutting the local transmission chain than vaccination, little incentive to promote the vaccination efforts, especially the vaccination on the at-risk population like the elderly.

And in the meantime on the demand side, this elderly, when they realize they're protected well by zero-COVID policy, they don't need to get the vaccine, they can still be shielded from the virus. They also had the little incentive to receive the vaccines. So vaccines become marginalized in China's policy response to COVID, that also in part explained why they were not so enthusiastic about the importing foreign vaccines.

LINDSAY:
And I should note, when I say mRNA vaccines, we're talking vaccines made by Pfizer and Moderna. Do we have any sense, Yanzhong, how effective the vaccines the Chinese did produce are against the variant of the coronavirus that China's dealing with today?

HUANG:
Well, I think we have to make a distinction between vaccination against infection and vaccination against the severe cases and death. If we trust the data from, I think it's the University of Hong Kong, well, basically, the enacted vaccines are not very effective compared with mRNA vaccines in terms of preventing infection. But they were seems to be effective in preventing severe cases and death, but the problem here, the further study found that this effectiveness also declined over time. So over six months, essentially, again, when you compare that with mRNA vaccines, the efficacy preventing against severe cases also dropped to a low level. 

So that is the problem that China had when they reopened, because most of the population have received the vaccine more than six months early. So the antibody level has dropped to a very low or even undetectable level. I think that may explain why, especially given that few Chinese had prior exposure to the virus, essentially it would allow the virus to spread in China without any impediments.

LINDSAY:
And obviously, a vaccine is not effective at all if you don't take it. And as you point out, a large section of the Chinese elderly have never been vaccinated, and China not only has a very large population, more than 1.2 billion people, it is a relatively old population, has a lot of people who are elderly, and we know that the coronavirus is a virus that is particularly lethal for people who are older and also people who have comorbidities.

Zoe, I wanted to chat with you about what the consequences of this sort of flip in Chinese policy toward the virus means, first off for the Chinese economy, and then second for the global economy, because I've heard sort of two conflicting things about the decision, at least in terms of its economic effect. 

First thing I've heard is, "Oh no, this is going to be a big problem for the Chinese economy because people are going to get sick, factories are going to have to close down, there'll be a ripple effect." We're all now familiar with supply chain disruptions, maybe you have 95 percent of what you need to build that product, but if you don't have that other 5 percent you can't do anything.

Second argument I have heard is, "This means good things for the Chinese economy in the long run. Yes, a week or two, a month or two, it'll be difficult, but then China is going to grow and grow rapidly," which then leads to a third thing I've heard. I know I said two, but I'm going to add one, a third, which is this could actually be bad for everybody down the road because if China comes roaring back economically, it is going to add demand to the global economy at precisely the time that central banks around the world are trying to bring demand back down because of inflation. So help me understand what this means in terms of economics. I know you spent a lot of time thinking about the economic side of globalization and international politics.

LIU:
Yeah, thank you, Jim, for the question. I would say, let me step back first to add the economic dimension to the reopening, right? Because if we think about the timing of the changing, I mean, I'm not saying that this is the reason for China turning its back against zero-COVID. However, I think the economic pressure for Xi Jinping and his cadres was already very heavy. On the one hand, if we think about the cost of zero-COVID, if we just think in terms of opportunity cost as measured by unrealized GDP growth, if we think about the Chinese economy as $7 trillion and Chinese growth target was supposed to be 5.5, but because of-

LINDSAY:
5.5 percent growth.

LIU:
5 percent, because of a serious mismanagement, it was only able to realize 3 point percent, so that basically means China did not grow by 2.5 percent and 2.5 times 17 trillion, that is about $340 billion. That is about the size of Hong Kong GDP growth, so that's one side. And then on the other-

LINDSAY:
And this is for a government that prides itself in its ability to deliver economic growth, in some ways that's its main sort of argument for legitimacy.

LIU:
Exactly. And then on the other hand, from the consumer side, I mean, when economy doesn't grow, individual folks feel it. So the consumer confidence index was, latest data was available until November, and that plummeted to the record low for more than 15 years, and that was something around 85.5, which basically means from the height it was something at 120 and now is 85.

LINDSAY:
And if people aren't confident, they don't spend, if they don't spend companies, lose sales.

LIU:
Exactly. Now you see, "Okay, so what did the central government plans to do?" They laid out their strategy at the December central economic conference, which lays out the policy priorities for the new year, which leads to the three different scenarios you laid out. Could the Chinese economy grow if everything plays out exactly as the government hoped? It could be, because this time the government really prioritized the consumption. On the one hand, they laid out this big document called Strategic Planning for Boosted Consumption. That's the very first time the government laid out a plan for boosting consumption.

LINDSAY:
They want to get citizens to buy stuff.

LIU:
Exactly.

LINDSAY:
And just to put it in comparison, the United States economy is to a great extent driven by consumer demand. Americans like to buy stuff.

LIU:
Absolutely. However, our Chinese citizens have been famous for saving. However, things have changed and people are not spending for a variety of reasons, including zero-COVID, and COVID lockdown. So government wanted to boost economic growth through consumption promotion, so that's one part of the story. Let's just follow this chain of thought. If people spend, that is going to drive up consumption, and if people are consuming, factories are going to produce.

And then on top of that, the government is also stimulating the real estate market, that is going to boost the demand for the real estate sector, that is further going to drive up demand for steel, concrete, iron and things, all that. So this leads exactly to two of the scenarios you were talking about. "Oh, this is going to be good for the Chinese economy, but this is going to be bad for everybody else, for the global economy." On the one hand, we are already fighting the inflation here in the West and if China were reopened, China driving up demand, that is going to complicate our inflationary taming pressure. So to what extent China is going to export the inflation to the rest of the world, that is a big unknown and big concern.

LINDSAY:
I would imagine one of the areas where people are concerned has to do with energy.

LIU:
Yes.

LINDSAY:
Because one of the things that has happened in recent years is that China's appetite for oil has been down. But if the Chinese economy comes roaring back, I assume that the appetite for imported oil and China imports virtually all of its oil, I think natural gas as well, that is going to basically drive up demand in the global oil markets. We know that supply is tight in the global oil markets, not only because of, but in a good portion because of what is happening in Ukraine, so that means energy prices go way, way up.

LIU:
Yes. So if I am a commodity trader, probably I would've bet money with the long oil futures.

LINDSAY:
Okay. But we do not dispense investment advice here, so please consult your own financial counselor on that. Yanzhong, I want to come back to you, as you sort of look at all of this, what do you see as the longer-term diplomatic or geopolitical consequences of what China's going through right now? There's obviously some irritation in the short run, a number of countries, the United States among them, have put up requirements for people coming from China into their countries. In some cases like the United States, you have to take a test beforehand, other countries want you to take a test upon arrival from China.

I noticed the Chinese government has taken exception to these decisions, and I think in the case of China and South Korea, has retaliated by limiting the number of short-term visas they'll give to South Korean and Japanese citizen. But I want you to sort of lay out for us where you think this COVID surge and China's reaction may play out in the longer term. Is this likely to be a big bump in terms of tensions or just sort of maybe a speed bump?

HUANG:
Yeah, I think it's a very interesting question. Initially, I thought given that China was on the defensive, this bad economy, that the deteriorating relationship with the Western countries, now the reopening to the outside, they would be embraced by the outside world and taking a more sort of open approach to be less confrontational, for example. But it doesn't seem to be exactly the case, as Jim, you just mentioned, right? They were facing all these travel restriction measures, the U.S., Korea, Japan, they were similar, but they picked Japan and South Korea for issuing their visas, for short-term visas to their citizens, but they didn't do anything to the United States. Personally, I think this is a little bit like an overreaction, I would say, given that this is... Even though I think-

LINDSAY:
Overreaction by China or overreaction by other countries?

HUANG:
Well, initially what this reaction, the travel restriction measures, I personally think are not necessary diplomatically and epidemiologically, but I think it's acceptable given that many countries... But this is just like an inconvenience to the Chinese passengers, and plus by China, even imposed even draconian measures during the three years of zero-COVID, right? But I feel like denying visas to those who want to travel to China, this is a little bit too much. And I hope this is not expanded to other countries because we know that lack of personal exchange over the past three years have already contributed too much misperception, misunderstanding, too many conspiracy theories that have hurt international relations. I think it is time for China, I think, to adopt a more open-minded approach.

LINDSAY:
Just a quick technical question, Yanzhong, do we have a sense as to how effective these travel bans or travel tests are? And I ask because you're obviously in a situation that you could test negative for COVID, get on a plane, and by the time you land, actually be infectious, these tests aren't perfect. We're talking about countries like the United States where COVID is, I think we can say, endemic.

So I'm wondering how effective these restrictions are, are they, as often referred to as pandemic theater, or is there something to arguments I hear occasionally that we have to worry about new variants coming in and creating disease vectors that will invade the kind of vaccines we already have?

HUANG:
Well, I think their reasons to be concerned about the visitors from China because the reports suggesting close to one third of the passengers actually infected with COVID-

LINDSAY:
Yeah, I think that's been of Chinese citizens who've landed in Italy, where they do test upon arrival.

HUANG:
Right.

LINDSAY:
But small dataset in terms of the number of planes we're talking about.

HUANG:
Yeah, the main concern is the emergence of new sub-variants in China that spread in the Western countries, that is going to trigger a surge of cases in the West. But so far, we don't have any evidence that a new sub-variant is emerging in China, and actually, according to one of the leading epidemiologists here, since most of the population here was immunologically naive before this current wave, so the omicron variant could essentially spread rapidly in China but without the need to evolve themselves to avoid the immunity.

So I think especially also you consider that in many of the Western countries we have learned to coexist with the virus, and the virus brought by the Chinese citizens, they were essentially the same as the one we have already experienced here. So there really, I think this is not going to trigger any surge of cases here, but these measures could potentially be counterproductive in the sense that it might send a signal to the countries that saw the emergence new sub-variants, they would refrain from reporting to WHO for fear of being subject to all this travel restriction measures. And it also, again, not that good for international relations because they would discourage this personal exchanges, which I think is so important for improving relationship between China and the Western world.

LINDSAY:
One thing I should point out, which I seldom hear mentioned in conversations on this topic in the United States is that China itself was at a risk for importing new variants back into China that aren't there presently. And again, we're seeing variants evolve all around the world, new variants apparently taking over here in the United States.

Zoe, I want to close with you, if I may, and just sort of get your assessment of how big you think this COVID story in China will be over the course of 2023. Do you think it's going to be like the big issue or do you think that there are going to be other issues that are going to come up and we'll get to September, October, and whether we're talking about people in China or people overseas, won't be talking about the COVID surge?

LIU:
Yeah, thank you for the very good question. I would say China, both from the government, central government, Beijing to local government, from people living in Zhongnanhai to normal Chinese citizens, everybody would want to move beyond 2022. And if you just look at how people make their New Year wishes, everybody was saying that, "We just want to kick away 2022 and never go back to that era."

LINDSAY:
I've heard that in a lot of conversations here in the United States over the last three years.

LIU:
Right. And then a lot of I'm going to say the primary focus for the government really is going to be about the economy, how to stimulate the Chinese economy out of its recessionary trap, and then from the Chinese people, how could they move beyond the trauma for the past three years and regain confidence in the Chinese economy and their own economic security at the household level. I think that is going to be the priority for 2023.

And if we think about how President Xi Jinping has been behaving since his meeting with President Biden in Indonesia, I think his priority would really be, if I were him, from a rational perspective, I would be focusing on how to de-risk China's international relations because the prospect of the Chinese economy, on the one hand is going to be determined by two primary domestic factors. One is risk management, the other is going to be economic stimulus, and then the one single most important factor for the Chinese economy is going to be how to manage or narrow the risk of decoupling.

LINDSAY:
On that point, we're going to close up The President's Inbox for this week, but I'm going to put a marker down. I want to have both of you on in the fall, and we're going to look back and assess our assessments in this podcast, if you are both willing to do that. My guests have been Yanzhong Huang, a senior fellow for global health here at the Council, and Zoe Liu, fellow for International Political Economy here at the Council. Again, thank you for coming on and I would love to wish you a Happy Chinese New Year.

HUANG:
Thank you, Jim.

LIU:
Thank you, Jim.

LINDSAY:
Please subscribe to The President's Inbox on Apple Podcast, Google Podcast, Spotify, or wherever you listen and leave us a review, we love the feedback. The works mentioned in this episode, as well as a transcript of our conversation are available on the podcast page for The President's Inbox on cfr.org. As always, opinions expressed on The President's Inbox are solely those of the host or our guests, not of CFR, which takes no institutional positions on matters of policy. 

Today's episode was produced by Ester Fang with Senior Podcast Producer Gabrielle Sierra. Special thanks to Michelle Kurilla for her assistance. This is Jim Lindsay. Thanks for listening.