The "Real" Reasons For Loosening Zero COVID Restrictions?

Slowly, China is loosening some parts of its draconian Zero COVID policy.

Several cities, including Urumqi—site of an apartment fire where several people died arguably due to the extreme lockdown regulations—are relaxing their lockdown provisions, and allowing some things to re-open.

Urumqi, the capital of the Xinjiang region and where the protests first erupted, will reopen malls, markets, restaurants and other venues from Monday, authorities said, ending strict lockdowns after months.

The easing of the lockdowns is an apparent climb-down for Beijing from their rigid enforcement of Zero COVID across the country, in response to historic protests against not only the restrictions, but even against the CCP and Xi Jinping himself.

The protests broke out after an apartment fire in Urumqi turned deadly because the Zero COVID lockdown kept tenants in the complex as it burned—the latest in a string of accidental deaths attributed to the harsh lockdown rules of the Zero COVID policy.

The protests were an unprecedented show of civil disobedience in mainland China since President Xi Jinping took power in 2012.

In the days since, numerous cities have announced the easing of lockdowns, testing requirements, and quarantine rules..

In Shanghai, negative PCR tests are no longer required to access public services and transportation. A similar restriction was lifted in Nanning over the weekend.

The government’s rationale appears to be that, as Omicron is less deadly than previous COVID strains, the harsher restrictions are no longer needed.

Chinese President Xi Jinping blamed mass protests in Chinese cities on youth frustrated by years of the COVID-19 pandemic, but said the now dominant Omicron variant of the virus paved the way for fewer restrictions, European Union officials said.

The senior EU officials, who asked not to be named, recounted the main points of a visit to Beijing by European Council President Charles Michel, who met Xi along with other senior EU officials on Thursday.

Beijing would appear to be looking for an off-ramp from strict Zero COVID lockdowns, as an increasingly restive Chinese public seem increasingly unlikely to tolerate such lockdowns for much longer, especially as without some sort of easing in advance of China’s Lunar New Year holiday, when many Chinese travel to visit friends and family, a substantial amount of holiday travel would have to be cancelled. With several rounds of protest over the burden of Zero Covid having already been unleashed across China, disrupting the Lunar New Year holiday was shaping up to be calamitous for Beijing and the CCP.

“XI had a choice: sustaining a lockdown meant entire tranches of China not being allowed to participate in the Lunar New Year which, for many, is the only time in the year when they see family. This would have  increased tensions considerably,“ said US China expert Dean Cheng.

Xi’s conundrum, of course, is that the easing in the wake of the protests draws the inevitable conclusion that the protests led to the easing. Yet persisting with the rigid Zero COVID restrictions was likely to only lead to further and more intense protests. Xi is choosing the path of easing restrictions and hoping to contain the fallout.

“So he has decided to roll the dice in a shift in policy which also carries many risks.  Not only does it make him appear weak, but it will allow people moving from one region to another to share their experiences  of corruption, inconsistencies, of people being welded into apartments. These are no longer abstract problems."

“This means that Xi’s hope that blame sits with local administrations evaporates. It becomes a national problem, a party problem and, because he rejected the collectivism of his predecessors by concentrating all power on to himself, a  Xi problem.”

Yet there is another likely motivator for easing the restrictions—a growing number of local governments simply cannot afford to keep up with the demands of Zero COVID.

The zero-Covid policy kept China out of recession in 2020. But nearly three years on, the bills are mounting, placing an extraordinary financial strain on municipal authorities across the world’s most populous nation.

If lockdowns and mass testing persist, “the financial stability risks will increase,” George Magnus, an associate at the China Centre at Oxford University, told CNN Business.

“Local governments are under huge pressure from the cost of maintaining zero-Covid, and we can already see this in the debt sustainability of several entities and [in] instances where public services are being scaled back, local assets or services sold and so on.”

The costs of enforcing the lockdowns, particularly the costs of mass testing, are shouldered primarily by local governments, who have been racking up tremendous debts just trying to keep up with the requiements.

Local governments, whose revenues rely heavily on land sales, are more vulnerable than the central government. They spent 11.8 trillion yuan ($1.65 trillion) more than they raised in revenue between January and October, borrowing heavily to do so, according to data from China’s Ministry of Finance.

Zero COVID is an expensive policy to maintain, particularly the mass PCR testing requirements, and a growing number of cities simply do not have the means to maintain the policy.

Nor can it go unmentioned that Zero COVID is costing China manufacturing business.

Zero COVID Means Zero Future Business For China

In addition to the much-reported lockdown at Apple’s main iPhone fabrication facility in Zhengzhou, manufacturing output across China has been greatly reduced by the Zero COVID lockdowns.

Apple has already warned of Christmas shortages. Now analysts say the recent shutdown of Foxconn’s huge iPhone factory in Zhengzhou could have cost Apple a third of its Christmas inventory.

“It is a debacle of epic proportions for Apple,” says Dan Ives of US data research firm Wedbush. “In many Apple stores we are seeing major iPhone 14 Pro shortages of up to 35% or 40% of typical inventory heading into December. The Chinese supply chain is the Grinch that stole Christmas. Shortages are eye-popping.”

Apple is not the only company affected; logistics and transport data indicate a general production slowdown. Last week, road and rail shipments in China dropped by 36%, according to the supply chain data firm FourKites. Chinese shipping to the US has continued to decline and is down 34% compared with earlier in the year.

With a slew of western companies essentially pulling up stakes and exiting the Chinese markets rather than continue to deal with the Zero COVID restrictions, Apple is accelerating a shift of manufacturing capacity out of China and into India and Vietnam. The manufacturing business China is losing over Zero COVID is lost for good, there will be no recovering it later.

Simply put, China is slowly unwinding Zero COVID at last, not because Beijing wants to unwind Zero COVID, or because the data says now is the time to unwind Zero COVID, but because, politically and economically, Zero COVID is no longer sustainable. The fringe modifications it had been making are no longer enough, and this time Beijing really has blinked.

Zero COVID has bankrupted Chinese cities, pushed manufacturing jobs out of China for good, and has now pushed the Chinese people past their breaking point.

China is unwinding Zero COVID because it has to, not because it wants to.

Which means Xi Jinping has visibly lost control of the Zero COVID policy. Whether a tactical retreat on the policy is sufficient to quell the protests and end the immediate threat to Xi’s continued rule remains very much an open question, as is how far will the unwinding of Zero COVID go.

Yet even if the protests do abate, and Xi is successful at preserving most of the Zero COVID regime at least for a time, one reality remains: the protesters forced Xi to make a major policy shift against his will.

What can be done once, can be done again. Xi might retain his position, but there will be no recapturing the power he has lost from the Zero COVID protests. Unintentionally, he has discovered the limits to which he can oppress the Chinese people, which is to say the Chinese people have discovered those selfsame limits.

What happens in the next crisis in China will be immensely telling for the future of Xi Jinping and the CCP. It is not likely to be a good future.