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Zero Covid in China is over: What next?

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Zero Covid in China is over: What next?

Following unprecedented protests across China, the government has been rapidly dropping its flagship ‘Zero Covid’ policy as of the start of December 2022. While a return to normalcy in China may come as welcome news to locals and visitors alike, the road to get there will no doubt be bumpy. A largely unvaccinated public with little exposure to the virus now sees rising cases around China, similar to the difficult situation the rest of the world had to navigate in 2020 and 2021.

So what does the near future hold and will importers with a supply chain in China see improvements or even moreĀ disruption despite the end of the strictest regulations?

 

Listen to this episode. Hit play below:

šŸŽ§Ā BONUS: China Opening Up after Covid Zero, What Is Going To Happen? (Feat. Clive Greenwood & Ben King)

 

The national strategy is pivoting away from Zero Covid, but locally what has changed within China?

It’s a mixed bag, in Suzhou testing stations have been removed, but the requirement to do tests still remains in many cases for people moving around cities, eating out, etc. So the policy is implemented differently everywhere. In some cases, the need to take tests when flying around China has been scrapped in the past week. The atmosphere is now more one of the individual taking responsibility to protect oneself from Covid leading to many people skipping large gatherings, group meals out, etc. (02:02)

 

How do the local governments announce and implement the changes?

Each city has Chinese and English news updates that are sent out on WeChat in good time, but local implementation varies and it is taking some time for local security people to adjust to ‘not having the power’ any longer. The borders were centrally controlled, but on a province-by-province basis, the policies were vague and open to interpretation leading to confusing and silly rules and draconian enforcement by local authorities in order to cover themselves from any blame. (07:43)

 

How will the local authorities react to the easing of restrictions?

Some smaller cities will no doubt be slower to react and some factory owners (especially State-owned) may implement their own strict policies to avoid being locked down in the short term, but since the infection levels throughout China are now high in most places, there seems little sense in barring non-local visitors from factories as many did before. (14:16)

 

How quickly will the Chinese border reopen?

China needs to open its borders, but it may not do so until the risk level in China is the same as in the rest of the world. Hong Kong has opened up a lot faster, maybe it’s a test case for China. It’s likely to take some time still until it reopens fully. (21:31)

 

Will people even want to come back to China if/when it reopens?

Many businesses wantĀ to be able to visit suppliers and their factories in China. It has been possible to get a business visa and do so, while going through the quarantine, etc. The same for workers and family members. So on a business level, the appetite is there.

On a political level, the relations between the English-speaking West and China have worsened since Covid and some businesses are trying to decouple from China now…this may not be a fast transition, though, it might take a decade. Since the risks of manufacturing in China have increased, the cost benefits aren’t as valuable any longer. Also, foreign experts are less likely to want to live in China due to its politics, risk of lockdowns, etc. (25:53)

 

Zero Covid and China’s approach have been accelerating decoupling.

Some of the largest companies like Apple are the vanguard of decoupling from China and are doing so now. They don’t want to do NPI in China any longer and reduce the parts made and products assembled there. Smaller businesses will take longer to do this. Part of the issue is uncertainty over China’s approach. Can a business like Apple risk developing its new models and building a supply chain in China when they don’t know how the authorities there will act if Covid spreads or new variants occur? (31:08)

 

What might happen next in China, then?

The factors that led to China locking down haven’t changed. It’s less likely that foreign businesses will want to invest in China and place senior management and foreign experts there, rather it may become more of a sourcing hub. Large companies will still want to sell into the Chinese market, but there will be a reduction in businesses manufacturing in China specifically for export overseas. (35:43)

 

If you are manufacturing in China and exporting to Europe or the USA, what will happen next year (2023) and how can you plan for it?

It will be a slow opening up, perhaps starting with warmer provinces. There could be restrictions placed on travellers within China again, especially if the healthcare system is under threat. Now the government could be showing the population what happens (many infections) when opening up fully and quickly occurs following their demands.

In order to reopen and become more in line with the rest of the world, the narrative away from fear of covid has to change and messaging from the government is changing rapidly. (40:56)

 

Is the population ready for the end of Zero Covid? Will the government control the process?

For people in China, the total dropping of all measures is unlikely to happen. There may be an element of local controls, mask mandates, etc. There may be shielding of the elderly and vulnerable. More hospital capacity is being and will be built. Also, a widespread vaccine rollout is required (with effective mRNA vaccines), but this has never really happened yet…they had mass testing, so the next step perhaps is to convert testing centers to vaccination centers. The government messaging will be one of success against the virus.

Overall, it’s a stressful atmosphere on the ground, with confusing messaging and unclear guidelines. From a manufacturing point of view, it’s causing factories to be more cautious than before regarding visitors. (50:16)

 

Conclusion.

It’s a fluid situation. Mass vaccinations are probably coming. It will be a rocky transition and companies with Chinese supply chains may still have disruptions if there are lockdowns or worker shortages. (55:47)

 

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