China Lockdowns -- I Can't Make Any Sense of It. Why?

Hey guys -- I haven't been able to make much sense of the China lockdowns these days after weighing the situation. So here's the rationale for it

  1. Zero Covid was touted as a victory against the West so there's some political pressure to maintain it

  2. Chinese vaccines are crappy & if they did not do zero Covid their hospital system would be utterly overwhelmed 

However, here are the cons of this strategy:

  1. They will utterly crush GDP growth, I think consensus is 2-3% growth which is draconian for a country like China which is facing massive youth unemployment. They need 5% growth to be healthy, ideally 6-7%. High potential for social unrest if this continues 

  2. Incredibly demoralizing to the population. Was reading that in surveys of people in Shanghai, during the lockdowns over half were searching for how they could get out of China (permanently). CCP's zero Covid is killing a desire for its top citizens to live in China which is a massive talent drain over time 

I get the arguments above & so you could argue that the pros & cons make it pretty hard to figure out the right course. But here's the thing -- WTO ruled that other countries could copy the mRNA Pfizer / Moderna vaccines. Not just receive them (which these companies have offered to China, but China has refused likely to preserve its message that they don't need Western vaccines), but literally get the production process / formula.

So China could simply use this and create its own vaccines. This would help partially preserve the message that China can be self-sufficient (vs using vaccines manufactured elsewhere) and avoid crushing GDP / demoralizing your people. So why in the world is the CCP at this point so committed to zero Covid? If they made their own mRNA vaccines using the formula which they now have access to, they could vaccinate their pop within 1-2 months. What in the world is Xi thinking? What am I missing here?

Region
 
Most Helpful

I've been struggling to figure it out, too. Their policies are utterly irrational. The only thing that makes sense is that Chinese leadership feels a deep sense of embarrassment at the Wuhan Coronavirus so feels some weird need to defeat it totally. In other words, while I think humans, broadly, are rational actors, the Chinese Covid-19 policy is generated out of an irrational nature. Also, Asians seem to treat disease in general with a bizarrely irrational approach. I can't tell you how many Asian people in the U.S. I still see wearing N95 masks outside still. So, I think there is a huge cultural element to the Chinese policies, too. Maybe, if one stretches the mind, one could account to rational behavior China's Covid-19 policies by granting the context that China is pretty densely populated, so an out-of-control outbreak could kill a lot of people, but this is the same political party that murdered 40 million of its own people, so I'm skeptical that Chinese authorities actually care about dead bodies.

Array
 

Memberberries

I've been struggling to figure it out, too. Their policies are utterly irrational. The only thing that makes sense is that Chinese leadership feels a deep sense of embarrassment at the Wuhan Coronavirus so feels some weird need to defeat it totally. In other words, while I think humans, broadly, are rational actors, the Chinese Covid-19 policy is generated out of an irrational nature. Also, Asians seem to treat disease in general with a bizarrely irrational approach. I can't tell you how many Asian people in the U.S. I still see wearing N95 masks outside still. So, I think there is a huge cultural element to the Chinese policies, too. Maybe, if one stretches the mind, one could account to rational behavior China's Covid-19 policies by granting the context that China is pretty densely populated, so an out-of-control outbreak could kill a lot of people, but this is the same political party that murdered 40 million of its own people, so I'm skeptical that Chinese authorities actually care about dead bodies.

Isn’t an outbreak still hold more of an upside than what they’re currently doing? Growth has been slowing in China the past decade but it’s still way above 5%. & Given the current situation of their structural finance & metal commodities, not sure their state construction bonds gonna achieve the desired effect of creating temporary employments.

 

Could it be possible, and bear with me here, that the communist state controlled command economy may not actually be as affective as free market principles backed by limited self government?People give China way too much credit for their success. They essentially reverse engineered everything that passed through their borders the last few decades and pushed to drive personal consumption levels up through massive government spending on development.True economic power will always be as a result of maximizing freedom at the individual level. That principle will never change.

As for the covid situation, who knows. This could be a much larger chess game towards a desired outcome that we won’t understand until the aftermath. Shanghai also has a large amount of expats from around the world.

 

"pushed to drive personal consumption levels up through massive government spending on development"

As in property development? If so, can you elaborate on that stated correlation - don't see how more building/condos/office would be a primary growth driver of consumer spending.

 

Sure. It’s essentially Keynesian economic principles which says that one way to stimulate economic growth is through fiscal stimulus to stimulate demand for more goods and services. In China’s case, these principles were essentially invoked to urbanize the country and by doing so also drive the demand side of consumption equation. How? It’s what proponents of the Keynes economic principles call the multiplier effect - for every dollar of government spending there is a few more dollars of private sector spending.

It’s hard to find actual raw data on the effect that this has had in China but Statista has these numbers:

Chinas urbanization rate was 36% in the year 2000

Chinas urbanization rate in 2021 was roughly 64%

That’s just shy of a doubling factor within 20 years. For relativity, there’s not a period in the US going back to 1880 (according to statista) that has urbanized that quickly.

Chinas GDP in the year 2000 was around $1.2 Trillion

Chinas GDP in the year 2020 was around $14.72 Trillion

Consumption as a share of GDP in the year 2000 was 63.88%

Consumption as a share of GDP in the year 2020 was 53.3%

In 2010 (furthest I can go back on Statista) Chinas government spending to GDP was 25.09%

In 2020 Chinas government spending to GDP was 36.38%

Somewhere between these numbers there’s an equation that explains the multiplier effect government spending has had on consumption. What we’d also have to know as well though which is difficult to find on the web is how exactly the Chinese government is spending its money to achieve that “growth” and these levels of consumption.

 
Harvard_GS_HBS_KKR

Because COVID leaves as much as 30% of patients with "long COVID" symptoms, which include brain damage. This is basically an indirect kinetic war that China was destined to win from the start.

This is deranged. At this point, several hundred million Americans have had Covid. You’re saying 50-60 million have long Covid? 

Array
 

It’s a dictator state…obviously when xi can control every aspect of his constituents lives he’s not going to let go of that power. Hell, look at what all the dem states did, they hated the idea of losing control over the populace. People who attain power and have the presupposition that the ruling elite knows best will hold onto whatever power it is they gain at all costs. Everybody knows lockdowns don’t work and the vaccine doesn’t prevent spread so that’s not the answer either. It’s power, that’s it.

 

I believe it's a case of "they've made their bed and now that have to lie in it".

They took a bet on an extreme zero covid approach since the beginning of the pandemic. The rest of the world took a more open approach (or were forced to take a more open approach due to non compliance from citizens). No one really knew at the time which approach would be best. China basked in the glory of having far fewer death numbers than other countries. Now the dust has settled it looks like (from an economical point anyway) the more open approach was the right one.

If China abandon their zero covid approach now they will face a massive spike in deaths and infections as they haven't built up a natural immunity like the rest of the world has. They committed to a zero covid approach early on and now they need to stick with that basically.

 

In reading a few things on this - don't discount the role that internal politics plays in the decisions that Xi is making. CCP has the 20th party congress coming up later this year, in the Fall (so I guess not too far away at this point). Xi establishing himself as a strong, capable leader is probably on the forefront of his mind - as that will allow him to secure another five year term, as he continues to blaze a path towards lifetime leadership as there are no term limits anymore. Tech crackdowns, reinforcing the "Zero Covid" policies, silencing critics (i.e. Jack Ma in a Gulag somewhere - kidding, kinda) - all help to reinforce that at the party level headed into it. 

Through that lens - I can wrap my head around why they are continuing down this path, as authoritarian regimes are interested first in being self sustaining and it appears that Xi is hell bent on keeping himself in power, much like Putin, until he dies. Would love the perspective of others who follow Chinese politics more closely on this. 

 

We're in a new Cold War with China now, these lockdowns are likely more to do with the economy, supply chains and government policy than the pandemic. Africa didn't get vaccines, and seems to be doing fine. The original vaccine was for the original strain and is no longer that effective (notice how they aren't pushing it hard anymore?). The SARS-COV-2 genome was sequenced by China not Pfizer, and they conveniently left out the 4 HIV glycoproteins (gp120/gp41), hence why China doesn't want the western mRNA vaccines. 

 

This is a good discussion but one simple item is being ignored here: Vaccines and viruses are not a static thing. That is a consistently moving target that can easily change over time. 

  1. All vaccines are probabilistic in nature. They defend in most cases, not in all. This why you get the flu even after a flu shot.
  2. A virus will mutate against the vaccine and try & try again. That's simply what viruses exist to do.

If you read some of the news articles and research studies out there, there is a quiet consensus that says that the current vaccines (all of them) only work because of the spike proteins. Thats the "signature" that the vaccines use to identify corona cells. If those spike proteins ever change then we are all fucked and back to square one. If you read some of the early reports coming out on BA.5, there is a theory that this may be the first mutation without the spike protein and why it's starting to spread again so quickly. 

So, back to China. If you're willing to wear a tinfoil hat for a little bit, then is there something the Chinese have seen in their latest mutations that we should all be concerned with? After all, mutations are more likely to happen among large populations (more hosts) so it's likely that the "leading edge" of mutations will be found in China or India. I think there is value in looking at their actions and evaluating if this is something that is a leading indicator of things to come for the rest of us. 

 

These are fair points and good questions but i'd have to agree with the above post that it's probably a case of "they made their bed". Zero COVID was a large undertaking and a big propaganda win during the earlier phases of COVID. Then we found out that the vaccines weren't as effective as we had hope and COVID mutates rapidly. So now they're left in a situation where they have "meh" vaccines and much more limited natural immunity (which has proven to be longer lasting and more resilient to new variants vs. vaccines). 

If they could do it all over again i'm sure they would have taken a more Western style approach, especially given their far lower rates of obesity and other comorbidities. But once you've committed to "zero COVID" for alpha, delta, omicron etc. it becomes increasingly hard to abandon the policy. Abandoning the policy is an admission of failure and invites criticism of the regime. If they were still closer to a party oligarchy rather than a dictatorship then court politics could work like a pressure valve, with a new faction ousting the old faction and blaming them for failure. But Xi is functionally a dictator at this point, so that's not really an option. 

 

Modi consequatur tempora rerum enim quos. Sit dolorem omnis error voluptatibus fugiat. Consectetur nostrum laudantium eligendi ullam voluptates reprehenderit pariatur.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
DrApeman's picture
DrApeman
98.9
9
GameTheory's picture
GameTheory
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”