What the #lockdown in Shanghai tells us about China

Insights into why it happened, and key takeaways

In this post we will look at wy the lockdown occured, what does it tell us about China, and lessons to take away.

1: Why did it happen the way it did?

The Zero Covid approach did work the last few years in China (generally) while the rest of the world was greatly affected by the disease.  Shanghai and Jilin have been the big exceptions.

Instead of locking a city of 30m people down initially, Shanghai tried alternative tactics, including 48 hour lockdowns, a grid approach to Covid controls, etc.  The goal was to strike a balance between public health and economics.  Central authorities did tolerate it for a bit, but Omicron did not.

2: What does it tell us about China?

What are the policy drivers? Its both politics and public health. The meetings later this year are driving some of this, as well as China was safe from Covid for two years while the rest of the world was ravaged by it. Another is authorities have made public health a priority and a focus over the economy.

It would be a mistake to dismiss public health concerns including, but not limited to, ICU bed availability (or lack thereof), low vaccination rates amongst the elderly, and a public terrified of Covid.  All are fixable but not quickly.  China will not accept a large death rate, and won’t back away from policies to mitigate that threat.

How does this inform our understanding about China?  We are seeing how China operates, when the center makes up its mind, the rest follow.  Most measures are ad hoc and the pressure from BJ to do something and solve the problem has created additional challenges such as putting up fencing, etc. that prohibits movement of workers and medical supplies.

We are also getting  another reminder of how powerful local admins can be when empowered – and when the only focus is a singular issue, such as Covid case counts, they will do whatever it takes to execute it to completion. We are also seeing how skillful the government is at large mobilization. Over 200,000 medical workers, soldiers, and other personnel were mobilized and sent to Shanghai in a matter of days to address the outbreak.

Some are asking is China too rigid a system? The system understands the tradeoffs they are making in focusing on public health vs. the economy. Look for signs of preparation in a policy shift – such as vaccination of the elderly or stay at home ability for those that test positive for Covid.

3: What lessons can we take away?

A: We are reminded what drives government officials.  How are you contributing to the government’s develoment goals?   Covid is an extreme measure of this, and one example is to help local officials win. This means implimenting and then articulating what you as a company are doing to help officials hit their Covid targets.  If you do something, be sure to show how you are taking care of this and removing any Covid risk. Currently this is being done with Covid case metrics.

B: The Central Government doesn’t control everything until they want to. Local officials are the implementers of policy. Know the local stakeholders involved.

C: Politics can actually trump economics, this is the latest example.

D: Spend extra time with HQ to understand their concerns and address them. The overseas impression of China, the lockdown, etc. is incredibly negative and this perception will be with us for some time.  You can use Covid as an example on how China works.

Shanghai looks unattractive at the moment – there will be staffing and investment challenges.  When the dust settles there will be room to help China get back on its feet.  How can you do that and contribute to it?

F: Zero Covid is here to stay through most, if not all, of 2023. Expect some form of restrictions and travel challenges until 2025 at least.