Zero COVID is a failure.

What other conclusion is to be drawn from rising case counts in the face of disruptive and draconian lockdowns across China? From Hainan province in the east to Xinjiang province in the west, the SARS-CoV-2 virus continues to virus with impunity. Lockdowns and restrictions have not prevented China from recording its highest one-day total of new cases since May 12 of this year, according to the National Health Commission.

China has reported its highest COVID-19 infection figures in more than three months, with more than 2,400 registered cases in one day, the National Health Commission announced on Sunday.

Cases have been climbing steadily in China since August 3, and the lockdowns of Sanya and Yiwu a week ago have had no impact on that trend.

With tens of thousands of tourists still strapped in the coastal resort of Sanya, and with lockdowns spreading to the manufacturing city of Yiwu and beyond, how long can this trend continue without China being compelled to follow Zero COVID off the pandemic cliff?

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Hainan Province Becomes The Holiday From Hell

Tourism has become Zero COVID’s latest Chinese victim, with the recent outbreaks hitting some of China’ favorite domestic tourist spots.

China grappled with fresh COVID-19 flare-ups with daily cases across 17 provincial-level regions surpassing an unprecedented 2,000 on Sunday, with a high level of virus transmission notably coming from three major tourist destinations - Northwest China's Xinjiang Uygur Autonomous Region, Southwest China's Xizang Autonomous Region and South China's Hainan Province.

In keeping with Zero COVID’s past history of failing to halt community spread, the bulk of Sunday’s cases came from Hainan, the island province which locked down over a week ago after COVID-19 was detected spreading there.

Saturday saw 623 confirmed and 1,844 asymptomatic cases scattered across 17 provincial-level regions. Hainan reported the most daily COVID-19 cases at 1,340, while Xizang and Xinjiang regions reported 502 and 398 positive cases respectively, according to data compiled by the National Health Commission.

The continued rise in cases in Hainan is a complication for government officials working to allow the tourists caught up in the lockdown to return home: to travel they must prove themselves COVID free through repeated testing, yet the longer the tourists stay the odds they will test positive.

Nor are the tourists none too happy about their vacation to the island being turned into the holiday from Hell, and after a week of lockdown, with little or no information about when they can leave to return home, many are beginning to voice their frustrations. In scenes reminiscent of Shanghai, where residents protested the lockdown conditions, tourists trapped in Hainan have been gathering at their hotels, chanting that they want to go home.

Frustration is boiling over among visitors at two resorts over a lack of information from hotel management and the government on when they can leave. Vacationers at the Wyndham Hotel and the Marriott Yalong Bay have gathered to protest being locked down for more than a week, guests told Bloomberg News.

More than a hundred were seen chanting outside the Wyndham that they want to go home, according to a video shared by a guest. A Wyndham spokesperson for the hotel did not respond to a request for comment after calls and an email.

Tourists protesting their incarceration is not the sort of thing to add stars in the Michelin Guide.

Dealing with the tourist situation is a veritable minefield for local officials enforcing the Zero COVID protocols. On the one hand, the longer the tourists remain in Hainan the greater the chance is that they will contract COVID from somebody. On the other hand, if the tourists are allowed to leave there is a chance they will take this latest COVID outbreak with them, spreading COVID throughout China.

Already there are reports at one hotel of tourists wanting to move to a different hotel because some of the staff tested positive.

Araf told Bloomberg News that people want to go to another hotel after some Marriott staff tested positive for COVID. The cases meant guests will have to quarantine another 10 days and if they become infected they will be sent to a centralized quarantine facility, he said. A Marriott spokesperson for the hotel didn’t immediately respond to requests for comment.

Despite the turmoil, the bureaucrats in charge of “facilitating” the tourists’ departure remain inflexible about letting anyone leave the island.

A worker at the COVID control taskforce in Haitang district in Sanya, who declined to give her name, said tourists need to apply to leave with relevant documents and test results. After the city government approves their departure, travelers will need to purchase their own tickets and wait for city-arranged transportation to the airport, she said.

Shades of Shanghai loom large over Sanya, but with sandy beaches and better scenery.

Shanghai Pushes Forward

For its part, Shanghai is persisting in its efforts to fully reopen after the spring lockdown horror. School officials recently announced that all schools in the city would fully reopen on September 1st, and that normal class schedules would resume at that time.

Shanghai yesterday said it would reopen all schools including kindergartens, primary schools and middle schools on Sept. 1 after months of COVID-19 closures.

All teachers and students are to be required to take nucleic acid tests for COVID-19 every day before leaving campus, the Shanghai Municipal Education Commission said in a statement.

While there is little recent data on China’s test positivity rate, the potential for a significant increase in tests administered to result in a number of additional cases being detected—and thus triggering fresh lockdowns—seems highly likely. That the tests have to be administered before students and teachers leave campus perversely ensures that every individual testing positive will have had the bulk of a school day to circulate among the school population, shedding virus.

Positive tests among school children is not going to be an isolated handful of cases.

Yet even as the schools announce their reopening plans, fears of a fresh lockdown are growing. There have been reports of panic ensuing at an IKEA mall when it was abruptly closed for COVID-19 contact testing.

On Saturday, videos circulating on Chinese social media showed customers pushing past security guards and running out of an IKEA mall in central Shanghai in panic as an announcement blared over its sound system saying the mall was being locked down due to COVID-19 contact tracing.

Reuters was not able to independently verify the authenticity of the videos, but IKEA customer service said yesterday that the mall was shut due to COVID-19 curbs.

It does not help matters that Shanghai reported five new cases of COVID on Saturday—like a bad penny, COVID keeps coming back even after Shanghai’s spring lockdown.

Meanwhile, the virus continues to spread, as evidenced by the construction of new emergency hospitals in Tibet.

The Virus Is Spreading

The official narrative, of course, is that Zero COVID is working, and that without it, the outbreaks would be far worse.

The expert said the high daily surge is not necessarily a bad thing because it indicated the effectiveness of recent anti-epidemic measures. The number should have been much higher given the numbers of visitors in epidemic-hit regions, the expert said, assuring the public that this round of outbreaks in the country's popular tourist destinations will eventually be brought under control. However, judging from recent daily recorded cases, it will still take a certain amount of time before the trend goes down, he said.

Despite the brave pronouncements about the effectiveness of the Zero COVID protocols, however, the virus is spreading. That much is mathematically certain based on the latest effective reproduction rate numbers for China, which have remained above 1 (increasing infections) since mid-June.

Even the recent Hainan lockdowns have not dented the rising reproduction number, meaning the virus is spreading regardless of the Zero COVID restrictions (virus is going to virus, after all).

Economy Will Take It On The Chin Yet Again

Although economists had been forecasting further recovery for China’s battered economy in July, the economic data just released are a disappointment across the board, forcing the PBOC’s hand, which has lowered interest rates 10 basis points—an admission the economy is foundering and in need of some assistance.

The People’s Bank of China cut its rate on a one-year loan to 2.75% from 2.85% and injected an extra 400 billion yuan ($60 billion) into lending markets after growth in factory output and retail sales weakened in July and home sales fell by double digits.

The rate cut is sure to depress yields even further, which were already below US Treasury yields and falling, raising the risk of capital flight from the country.

As of this writing, the 10 Year US Treasury yield is 2.829%

Yet the PBOC had little alternative, as the data shows the economy continuing to weaken across the board:

• Industrial production growth slowed to 3.8% (forecast was 4.6%)

  

• Retail sales growth slowed to 0.27% month-on-month.

  

• Loans fell sharply from June to 756.1 billion yuan in July (forecast was 1.3 trillion yuan).

  

Readers will hardly be surprised by these numbers, as I have been discussing China’s ongoing economic collapse for some time. However, to these numbers can now be added the tourist revenue loss from a locked down Hainan and the lost manufacturing output from a locked down Yiwu.

Zero COVID ensures that July’s bad economic numbers are most probably going to be worse for August, despite the PBOC’s contrarian loose money policy at a time when other central banks are tightening.

Easier loan terms are not going to help when businesses are shut down. Closed businesses do not need loans, open ones do.

Virus Spreading Means More Lockdowns Are Coming

With the virus continuing to spread despite the best efforts by local officials to enforce Zero COVID, and with the economic damage already “baked in” to a large degree, the question becomes how long before another country-wide lockdown ensues?

Even if China’s nucleic acid tests are exceptionally accurate, with more than 60,000 tourists in Hainan yet to be allowed to leave, and untold other numbers similarly trapped in Lhasa and other tourist locales, the probability of some COVID-positive people leaving the locked-down cities is extremely high. Zero COVID has failed to halt the spread of the virus from city to city during prior lockdowns, and the pressure to return the incarcerated tourists to their home communities is only going to increase over time.

More cities are going to have more cases, and very soon. How severe the outbreaks will be is as yet problematic, but the number of outbreaks is almost certain to increase in coming weeks.

With city-wide lockdowns being enforced for even just a handful of cases, and multiple outbreaks in cities across China quite likely in the near future, how long will it be before most of China is under lockdown yet again?

The world wonders….

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