April 21, 2022 | Policy Brief

China’s COVID-19 Crisis Threatens to Derail Xi’s Ambitious Economic Agenda

April 21, 2022 | Policy Brief

China’s COVID-19 Crisis Threatens to Derail Xi’s Ambitious Economic Agenda

The fallout from Chinese Communist Party (CCP) General Secretary Xi Jinping’s failed zero-COVID-19 policies threatens to undermine public trust in CCP governance in ways not seen since the Tiananmen era. To maintain economic and social stability, Xi will probably have to temporarily abandon some elements of his ambitious macro-economic agenda, thereby delaying his goal of reducing China’s reliance on overseas markets.

Following a COVID-19 surge, approximately 373 million people living in 45 Chinese cities have come under some form of lockdown since March. Residents in lockdown cannot leave their homes, even to purchase food, and are subject to mandatory, sometimes daily, COVID-19 testing. Authorities have also begun forcibly evicting citizens so their homes can be converted into quarantine shelters. Rising caseloads have strained China’s hospital system, leaving the country’s at-risk populations, including the elderly, unable to access basic healthcare services.

Desperate, frustrated citizens have begun sharing anti-CCP content on Chinese social media, the sheer volume of which has overwhelmed censors. In Shanghai, the separation of COVID-19-positive children from their parents led to a virtual uproar, after which officials reversed the policy. Details about rampant food shortages have also been disseminated widely, as have reports regarding sporadic protests.

The prevalence and tone of anti-CCP social media content suggests that citizens are extremely dissatisfied with Xi’s handling of the outbreak and increasingly skeptical about the CCP’s COVID-19 surveillance protocols. Some pro-government figures, such as Hu Xijin, the former editor of the state-run tabloid Global Times, have stated that reports about civil unrest reinforce impressions that the fight against COVID-19 is “overwhelming” officials.

Lockdowns are also battering China’s economy, leading Premier Li Keqiang to issue several stark warnings about China’s economic outlook. While China’s GDP grew by 4.8 percent during the first quarter of 2022, Chinese government statistics attributed much of this growth to export-driven activities recorded before the lockdowns. After lockdowns were ordered, the unemployment rate in 31 major Chinese cities rose to 6 percent, a record high. Among those aged 16 to 24, unemployment increased to 16 percent.

COVID-19-related disruptions also dragged down China’s hyper-leveraged housing sector, which accounts for roughly one-third of Chinese GDP. Home sales plunged 25.6 percent in the first quarter, while new construction starts dropped 17.5 percent. Real estate conglomerates, including troubled developer Evergrande, refused to release 2021 earnings data, raising concerns about their liquidity. Meanwhile, the closure of Shanghai’s container port, the world’s largest, has stranded hundreds of cargo vessels offshore, exacerbating existing supply chain disruptions.

China now appears unlikely to achieve its annual growth target of “around 5.5 percent,” and Xi’s poor handling of the crisis is leading many Chinese citizens to question the CCP’s stewardship. The longer lockdowns remain in effect, the higher the probability of social unrest. Nevertheless, Xi is unlikely to retreat from his zero-COVID-19 campaign. Doing so would undermine the CCP’s claims regarding the superiority of China’s political system and would damage Xi’s legitimacy given that state-run media have portrayed him as “personally issuing commands” in China’s battle against COVID-19.

Still, in an attempt to stabilize China’s economy, Xi will probably embrace some policies that run counter to his autarkic agenda. Those include bailouts for China’s distressed housing sector and additional stimulus for private-sector entities, as well as a concerted push to restart manufacturing to sustain export-driven growth.

Interestingly, U.S. policymakers could potentially leverage China’s continued reliance on Western capital and technology to shape Xi’s behavior, at least in the short to medium term. Selectively deepening China’s dependence on the United States in certain sectors could constrain his appetite for antagonizing Washington while he struggles to sustain China’s economic recovery.

Craig Singleton, a national security expert and former U.S. diplomat, is a senior fellow at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s China Program. For more analysis from Craig and the China Program, please subscribe HERE. Follow Craig on Twitter @CraigMSingleton. Follow FDD on Twitter @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.