The Gravity of Zero

Beijing is facing a new policy dilemma in grappling with how to exit strict measures to control the spread of COVID, with no clear solution on the horizon. The economic costs of these controls are only likely to escalate in 2022, given the continued spread of the Omicron variant, with little chance of eliminating the virus in China. But there are few scenarios for relaxing controls without seeing significant contagion that would undermine China’s political messaging of success in limiting the pandemic so far.

International travel restrictions are likely to remain in place for all of 2022 or longer. But following the Winter Olympics, the probability of Beijing relaxing local virus suppression measures will rise, particularly as economic and political costs escalate. Household consumption and services sector enterprises may not recover meaningfully this year, but there will be immediate pressures to at least keep ports and factories operating within an already flagging economy. Incentives for local officials can change quickly in China’s political system, and propaganda messages can reverse on a dime.

Posted January 21, 2022
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