In today’s Finshots, we imagine a future where China’s still attempting to keep its Covid cases to zero!

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The Story

Imagine you’re in the year 2025. 5 years after coronavirus cases first began cropping up across the globe. It’s a long-forgotten tragedy by now. Cases crop up occasionally. But nobody really cares anymore. The only time you hear about Covid is when you get a notification on your phone from the government — “Visit your doc for the annual booster dose”.

Besides that, there’s nothing else. The masks are gone. The social distancing is gone. And the lockdowns — all gone.

But in China, things are a little different. The state keeps imposing lockdowns every time someone catches a cold. Everyone still wears a mask and testing is commonplace.

The Zero-Covid strategy remains firmly in place, while the country continues to cede ground to other developing economies. They once contributed 30% of the world’s manufacturing figures. But now they’re struggling. Businesses and industries have moved away, disappointed by the constant lockdowns and the world isn’t dependent on China anymore.

Imagine…

Imagine this happened…

Well, none of this is true. But there’s a reason why we outlined this hypothetical scenario. China is relentless with its Zero Covid strategy. It’s the only country in the world that’s relying on lockdowns, isolation, and mass testing in 2022. Every time a case pops up, the country goes into overdrive and shuts everything down — schools, offices, parks, everything. Yup, 2.5 years after the pandemic, this is still happening. 2.5 years after vaccines and boosters have been made available, China’s still holding on to the last vestiges of a Covid policy pioneered way back in 2020.

And it’s doing some damage to the Chinese economy.

Just look at Apple. The company lost $4 billion in expected iPad and Mac sales alone due to China’s lockdowns. And Foxconn — Apple’s principal contract manufacturer is losing employees. Hundreds of workers walked away from factories a couple of weeks ago, fearing more lockdowns. If this continues, Apple could take another beating this holiday season.

And what do you think they’ll be talking about in the boardrooms huh?

They’ll probably be looking at alternatives.

And it’s systemic. This year, the American Chamber of Commerce in Shanghai surveyed 307 businesses in Shanghai to get a sense of what the CEOs are thinking about future prospects. And only 55% felt optimistic about their business over the next 5 years.

Now if you’re thinking, “That’s not too bad”, you need some context — that’s the lowest reading in the survey’s 23-year history!

It’s worse than the surveyed figures from 2019 when Trump was at loggerheads with China and trade relations were deteriorating. And it is worse than in 2020 when the pandemic first hit. And the proof is in the pudding. Apple has already moved some of its manufacturing to India. Google’s expected to move some of its manufacturing units to Vietnam. Microsoft is already manufacturing gaming consoles out of Vietnam. And Amazon’s building Fire TV devices in India. Also, according to transport economics firm MDS Transmodal, China’s share of global exports has already fallen from 64% to 53% in furniture and from 41% to 37% in clothing and accessories in the past few years

But let’s not get too excited about India’s prospects. A study conducted by Nomura found that 56 companies relocated production from China between April 2018 and August 2019. 2 companies went to Indonesia. 11 to Taiwan. 8 to Thailand. 26 to Vietnam and only 3 came to India.

So we still aren’t a preferred destination.

But what about China?

Will China ever stop imposing the draconian “Zero-Covid” restrictions?

Well, we don’t know. The thing is — They found some early success by imposing these harsh rules. While most countries were struggling with deaths, disease and administration failures, China managed to wriggle out of the first wave relatively unscathed. They reopened factories, doubled down on production and exported goods en masse.

And walking back on a strategy that proved so useful may seem daunting. Worse even, it could prove that China got it all wrong right from the beginning. There’s also the fact that natural immunity levels in China remain very low. So if they remove restrictions and a new wave comes crashing through, the political backlash could be massive. And some experts contend that their vaccines may not have been as effective as other vaccines that hit the market these last few years.

So there’s a massive political implication if China were to move away from the Zero-Covid strategy. But what if the economic implications are even more damaging?

Well, it’s a tough choice. Maybe they’ll figure out how to walk the tightrope. Or maybe they won’t.

Until then….

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