The Price Of Zero COVID: China's Future

Lockdowns And Uncertainty Are Destroying The Ambitions Of China's Next Generation

By now it is no longer newsworthy that Chinese cities are locking down yet again over a handful of COVID-19 cases. It is only somewhat interesting that cities are being extra paranoid in the runup to the Party Congress next week, so much so there are reports that workers from a neighboring province are being unilaterally quarantined in one Chinese city.

Authorities in Ningbo, Zhejiang province, took the extreme measure of giving a red health code to all people from Henan in the city, according to an unverified document leaked on Saturday.

The document, purportedly from Beilun district, said that all the 60,000 or so people from Henan already in Ningbo were subject to three days of home quarantine and four days of home health monitoring if they are not from higher-risk areas in Henan.

As luck would have it, workers from Henan province are a mainstay of the workforce in Ningbo, making the quarantine rules highly disruptive.

In Yongji, a three-day lockdown was instituted in response to a whopping zero infections reported.

“To follow the instructions of the provincial government, contain the risk of Covid-19 spreading from outside, ensure people’s health and security, we decided to put Yongji into silence,” the government said in a statement, avoiding use of the term “lockdown”.

This is China’s “new normal”—a neverending procession of lockdowns, mass testing, and rampant pandemic paranoia.

We have seen how this plays out, in Heibei, in Shenzen, in Shanghai, in Chengdu. We have seen the botched confinements. We have seen images of cities descending into a dystopian pandemic purgatory.

It Never Rains In China, It Just COVIDs

Yet we should also look at the long-term cost of Zero COVID. We should consider the ramifications for China of these draconian lockdowns beyond the immediate societal and economic impacts, because the reverberations of these policies will be felt in China for years to come.

“Lying Flat”: China’s Generational Maladaptive Response

Zero COVID has brought into sharp focus a growing generational issue—some would say problem—within China: “Lying flat”, or doing just enough to survive, without scrimping and sacrificing for future prosperity and material wealth.

“Lying flat” essentially means doing the bare minimum to get by, and striving for nothing more than what is absolutely essential for one’s survival.

It represents the mindset of lying down instead of being a productive member of society. Rather than striving to study hard, buy a home, or even start a family, a subsection of society is rejecting it all to lie flat.

Lying flat, or tang ping (躺平), is not a new phenomenon, but gained traction as a social media meme beginning in 2021, as a counter-culture movement against China’s “996” (9am-9pm, 6 days a week) culture of overwork as well as the chaos and uncertainty brought on first by the pandemic and then by Zero COVID.

On the Baidu Tieba social media platform, a man named Luo Huazhong, in his mid-twenties, wrote about how he had embraced this lifestyle of minimalism for two years.

“Life is just lying down, lying down and lying down,” he said in the post, titled “Lying flat is justice”.

Instead of buying into Xi Jinping’s rhetoric about the “Chinese Dream”, proponents of lying flat express an overall apathy towards the outward trappings of that dream.

“When I say lying flat, I don’t mean that I just lie down every day and don’t do anything,” Luo later said in media interviews. “Lying flat is a state of mind – that is, I feel that many things are not worthy of my attention and energy.”

At a time when China’s economy is reeling under multiple crises, beginning with its collapsing property sector, the disinterest in the up-and-coming generation in working diligently to build a materially prosperous future has outsized consequences for China.

In the long run, lying flat could not only affect Chinese consumption and growth, but also lower the birth rate that is already eating up the country’s demographic dividend and threatening its social welfare system, according to economists and social commentators.

If China’s next generation becomes committed overall to just getting by, the days of China’s torrid economic growth are ended, perhaps permanently.

Adulthood Canceled?

Even without the lying flat counter-culture, China’s next generation is struggling under another burden brought on by the Zero COVID policies: the elimination of formative experiences which aid in emotional and psychological maturation, and which are invaluable to assist young adults in transitioning from an adolescent outlook to an independent adult one.

In the early days of the pandemic, remote online courses became the global norm. Though as most countries embraced vaccines, and their people resumed normal activities, universities reopened to on-campus learning.

But for Wu and millions of other students across China, nearly the entirety of their college lives have occurred away from campus, as the government’s persistent zero-Covid policy entails highly disruptive coronavirus-containment measures, including occasional citywide lockdowns and strict controls on movement between provinces.

Setting aside the questionable quality of remote learning for the bulk of one’s college classes, Zero COVID has also virtually eliminated the opportunity for young adults to be “out on their own”, living more or less independently for the first time. The abrupt termination of these developmental opportunities cannot help but have lifelong impacts on how China’s young adults become adults in a psychological and emotional sense.

Additionally, Zero COVID has served to increase the psychic costs of educational and career ambitions, as the omnipresent threat of lockdowns all but guarantees repeated disruptions of the pursuit of such ambitions, leading many young Chinese adults to question whether having such ambitions is even worth the emotional turmoil.

Wu, who is studying automotive engineering, said the tumult of the past few years under zero-Covid has deprived students of countless opportunities to study and travel, stripping them of freedom at a time when they are meant to be embracing it.

And personally, it has made him mentally and emotionally deflated, with little to strive for.

“I didn’t know whether I should prepare for the postgraduate exam or look for a job,” said Wu, whose career plans were upended by lockdowns. “I am very confused.

“It’s left me with no desire to fight for the future. Now I just want to live a peaceful life without ambition.”

WIth the government assured of repeatedly acting to thwart personal ambitions, an increasing number of young Chinese appear to be effectively “giving up” on ambitions, to where lying flat becomes the one attainable ambition left to young adults. As already noted, national economic growth and even national economic health become all but impossible when young adults simply give up on their futures.

This relatively passive attitude can even be seen as an outgrowth of the surge worldwide in mental health issues, particularly anxiety and depression, triggered largely by the lockdowns and other governmental responses to the COVID-19 pandemic.

Anxiety and depression increased globally by a massive 25 per cent in the first year of the Covid-19 pandemic, according to a scientific brief released by the World Health Organization (WHO) in March.

One major explanation for the increase was the unprecedented stress caused by social isolation. Linked to this were constraints on people’s ability to work, seek support from loved ones and engage in their communities, according to the WHO.

Zero COVID has been identified by Chinese researchers as the prime current driver of such phenomena.

While the initial panic stemmed from the new coronavirus itself and the stigma of being infected in the first waves of the pandemic after it emerged in Wuhan in 2019, experts say the latest sources of anxiety relate to the consequences of how China’s zero-Covid policy is managed.

It certainly is difficult to argue that the inherent uncertainty of Zero COVID, and the inability to predict when a community will be placed under lockdown, naturally creates a persistent tension and state of anxiety within Chinese society.

Are the attitudes of China’s youth towards work and material prosperity a reflection of this state of anxiety and the depression that likely ensues? To at least some degree, the connection is plausible and is difficult to dismiss.

China’s Young Adults Are Saving More. Are They Saving Too Much?

One of the great conundrums in economics is the dynamic tension that exists between savings and consumption within a society. While saving for the proverbial rainy day is a good thing, without consumption there is no final demand for goods and services—and a given level of supply needs a level of final demand (and thus consumption) for an economy to be in balance.

Thus savings and consumption are both essential elements of personal behavior in an healthy economy.

Thanks in large part to the perpetual uncertainty wrought by Zero COVID, China’s youth are displaying an inordinate committment to saving, and a significant willingness to forego consumption.

The coronavirus-induced economic downturn has clouded their outlook for future income and careers, tilting the balance from consumption to savings, according to a survey released this week.

Only 6.9 per cent of the 2,200 people aged below 40 across China polled by online tech news platform youth36Kr said they do not save, while 40 per cent save on a monthly basis.

“The percentage will increase as my income increases,” said Li Mingyang, a trainee at a securities firm in Shenzhen, who saves 30 per cent of his monthly salary.

With stable employment increasingly unlikely in an environment where any day can bring a fresh round of lockdowns, young people in China are being incented to save their money wherever they can—so much so that some are saving over half their paychecks, just to have a cash reserve against employment and economic disruption due to Zero COVID and the resulting lockdowns, quarantines, and isolations.

The motivation to save is easy to understand: with nearly one out of every five Chinese age 16-24 unemployed (an alarmingly high rate in a centrally planned and managed economy such as China’s), young people are faced with the reality that jobs are not guaranteed, and neither is income.

Yet this savings could represent an economic cost to China. WIthout consumption, suppliers are forced to cut prices—and potentially profits—in order to entice savers to become consumers.

Luo said she and her friends liked to order takeaway milk tea every other day, but have now reduced their consumption to just once a week.

This trend has forced leading chains within China’s multibillion-dollar drinks segment to slash their prices from around 30 yuan (US$4.4) to between 9-19 yuan.

While classical economic theory encourages such pricing behaviors as an organic way for markets to achieve equilibrium between supply and demand, there is no denying the reality that when both supply and demand decrease, that is by definition a net contraction in an economy, and therefore a recession.

Accordingly too strong a savings impulse within leads to what some economic theorists call “the paradox of thrift¹”. While a staple of often-discredited Keynesian economic theory, the paradox of thrift highlights the relevance of consumption and spending in an economy as a driver of supply.

The paradox of thrift, or paradox of savings, is an economic theory that posits that personal savings are a net drag on the economy during a recession. This theory relies on the assumption that prices do not clear or that producers fail to adjust to changing conditions, contrary to the expectations of classical microeconomics. The paradox of thrift was popularized by British economist John Maynard Keynes.

While Keynes’ promotion of the paradox of thrift as a rationale for government intervention in an economy (chiefly through lowering interest rates in order to spur spending and consumption) remains a source of some controversy within economic circles, there are examples within US economic history² that suggest the paradox of thrift has at least some merit.

A real world example of the savings paradox during the Great Recession was the case of 25- to 29-year-olds who moved in with their parents. The percentage of such people increased from 14% in 2005 to 19% in 2011. While the move helped families save money on rent and other expenses, it caused estimated damages of as much as $25 billion per year to the economy.

A frequent criticism of the paradox of thrift is that it violates another economic theory, Say’s Law³, which identifies successful prior production (thus income) as what drives the capacity to buy.

• Say's Law of Markets is theory from classical economics arguing that the ability to purchase something depends on the ability to produce and thereby generate income.

• Say reasoned that to have the means to buy, a buyer must first have produced something to sell. Thus, the source of demand is production, not money itself.

• Say's Law implies that production is the key to economic growth and prosperity and the government policy should encourage (but not control) production rather than promoting consumption.

According to Say’s Law, consumption is not the driver of economic prosperity; rather production of goods and services is what enjoys that role. Building on that premise, many classical economists argue that savings is a net positive in an economy, as it leads to investment, which allows for increased production.

In an ideal economy, with freely operating markets that allow prices to rise and fall to find the equilibrium between supply and demand, savings theoretically finds its own equilibrium with consumption. In accordance with Say’s Law, production and consumption, supply and demand, move towards a dynamic equilibrium.

However, China’s economy is far from ideal, and is certainly not one with freely operating markets. This reality is driven home by Zero COVID, which continually disrupts both supply and demand by effectively shutting down market activity at random intervals.

Thus, China’s savings rate among young people potentially is another real-world example of the paradox of thrift, and also an illustration of how government intervention in an economy can give rise to the paradox of thrift. By disrupting employment and productive economic activity through Zero COVID, the Beijing government arguably is incenting such a degree of savings among China’s young adults that, with consumption thus curtailed, production becomes constrained. This “savings glut” represents what could be considered a structural disequilibrium between savings and consumption which limits economic growth by restraining demand.

Government stimulus to spur consumption can thus be seen as a government “fix” for a problem actually created by government in the first place. In the case of China, government stimulus in the wake of—and frequently concurrent with—Zero COVID policies is a presumed “fix” for a problem the Chinese government is continuing to create.

Zero COVID Produces Perpetual Disequilibrium

Societally, psychologically, and economically, China’s Zero COVID policies function as a structural source of enduring disequilibrium. The random and seemingly arbirtrary nature of the lockdowns and other controls preclude people from adapting to the policy and thus moving forward with their lives and economic activities. Zero COVID represents a continual shifting of the ground rules, leaving the Chinese people constantly playing mental catch-up to the latest state of affairs.

Not only is this constant shifting of the ground beneath people’s feet harming the economy in the near term, by disrupting production and roiling supply chains both within China and around the world, it is showing effects that will reverberate within China’s economy for the longer term as well. Zero COVID makes “lying flat” increasingly attractive, and even when people are focused on productive labor instead of just getting by, uncertainty has produced an extreme emphasis on savings, reducing the impetus for consumption within the Chinese economy. Zero COVID is thus constraining the Chinese economy today, and tomorrow as well.

Even if Zero COVID policies ended today, the psychological impacts and the economic dislocations would take time to revert back to a pre-pandemic norm, assuming such reversion is even possible.

Zero COVID is reshaping Chinese society and the Chinese economy, by accident rather than by design, and is doing so in ways that do not bode well for China’s future economic health and prosperity. By effectively suppressing both the economic activity and economic ambitions of China’s youth, Zero COVID is steadily unraveling the economic progress China has made over the past few decades. With Xi Jinping poised to win a third term atop the Chinese government, Zero COVID is poised to continue poisoning Chinese society and the Chinese economy for some years to come.

1. Chen, J. Paradox of Thrift. 20 Nov. 2020, https://www.investopedia.com/terms/p/paradox-of-thrift.asp.

2. ibid.

3. The Investopedia Team. Say’s Law of Markets Theory and Implications Explained. 20 Mar. 2022, https://www.investopedia.com/terms/s/says-law.asp.