No One Loves Zero Covid … But Me
DATE:  Sep 30 2022
/ SOURCE:  Yicai
No One Loves Zero Covid … But Me No One Loves Zero Covid … But Me

(Yicai Global) Sept. 30 -- Recently, policymakers have sounded much more optimistic about winning the battle against Covid-19.

At a press conference a couple of weeks ago, World Health Organization Director-General Tedros Adhanom Ghebreyesus said that the world has never been in a better position to end the pandemic. Still, he urged governments not to relax their efforts, to take a hard look at their Covid-related policies and strengthen them.  

A few days later, US President Joe Biden went a step further declaring that the pandemic is over in the US.  Nevertheless, with 400 Americans dying from Covid each day, it appears that the President’s comments did not presage a major change in public health policy.

Yet some jurisdictions are relaxing their regulations.

Hong Kong has terminated its mandatory quarantine rules for overseas arrivals. Moreover, incoming travellers will no longer have to show a negative PCR test before boarding a plane to the city.

Starting October 1, Canada will stop requiring visitors to show proof of vaccination to enter the country. And those travelling by plane or train will no longer have to wear masks. These more accommodative policies could not have come at a better time for me, as I plan to return home – for the first time in three years – and spend Thanksgiving with my mom, my sister and her family. I still plan to wear my mask on the plane.

In China, the government continues to prioritize public health and is maintaining its Zero Covid policy. While this policy is effective, it is also expensive. Reflecting this, the World Bank slashed its forecast for China’s GDP growth this year to 2.8 percent, down from the 5.0 percent it predicted in April. Aaditya Mattoo, the Bank’s chief economist for east Asia and the Pacific recently told the Financial Times that China is “paying the cost of containing the disease in its most infectious manifestation.

Around the world, governments have been trying to balance two objectives: saving lives and minimizing the economic cost of public health measures. Let’s take stock and see how China’s efforts stack up with those of the other major countries.

Let’s first consider the public health outcomes. Figure 1 presents cumulative Covid deaths per million population (I use the data through June 30, 2022 to be consistent with the GDP numbers below). China only recorded 4 deaths per million, well below the G20 average of 1588. Indeed, China’s outcome was, by far the best in the group. Deaths per million population in the US, the UK and Brazil were around 3000 per million people, almost double the G20 average.

Figure 1

Turning to economic outcomes, Figure 2 presents the change in real GDP over the pandemic period. China logged the second highest rate of growth after Turkey (we will return to Turkey’s experience). GDP in South Africa and Mexico actually declined over the ten quarters, while Germany’s was flat. Data for 2022Q2 are not yet available for Argentina or Russia.

Figure 2

Simply looking at the increase in GDP may be misleading because some countries, like China, have much higher potential growth rates than others, like Japan. To correct for this, we will assess the GDP Gap – the difference between potential and actual GDP over the pandemic period.

Our calculation is illustrated in Figure 3 which presents the GDP Gap for the US. The blue line is the profile of actual GDP (we index the real level of GDP to 100 in 2017Q4). The black dotted line is the GDP trend, which is based on the 2018Q1-2019Q4 levels. The GDP Gap is the difference between actual and trend GDP.

 

Figure 3

 

To estimate the overall toll of the pandemic over the last ten quarters, we present the cumulative GDP Gap in Figure 4. This is the quarter-by-quarter sum of the gaps. On average, the 17 countries for which we have data lost the equivalent of 35 percent of GDP between 2020Q1 and 2022Q2.

Figure 4

 

Turkey stands out as the only one of our G20 countries to have grown faster than trend over the pandemic period. Trend growth in Turkey was rather insipid: only 0.6 percent, at annual rates, over 2018-19. Although GDP dropped sharply in 2020Q2, it recovered to well above trend by 2022Q3 (Figure 5).  Since then, GDP has grown at an impressive, 7.5 percent, annual rate.

Figure 5

Turkey’s growth miracle is the result of heterodox economic policies that prioritize production, exports and employment at the cost of high inflation and a rapidly depreciating currency. Consumer prices were up 80 percent year-over-year in August, the highest rate among the G20 countries. Moreover, the Turkish lira lost 55 percent of its value against the US dollar during that period. This suggests that policy is pushing the Turkish economy to operate well above its productive capacity and that such high growth is unsustainable.

Abstracting from the Turkish experience, Table 1 compares public health and economic outcomes in China and the G20 countries for which the GDP Gap was the lowest. The first column shows the GDP Gap. The second column shows cumulative deaths per million population. The third column shows the number of Chinese lives saved, which is equal to the Chinese population times the difference between China’s value in column 2 and those of the comparator countries.

Every country must make its own assessment of the public health/economic output trade-off. However, comparing China on the one hand to Japan and Korea on the other, it seems to me that giving up 2 percent of GDP over ten quarters to save between 353,000 and 670,000 lives is an incredibly good bargain.

While I am a big fan of Chinese public health policy, I must admit that my neighbours have become increasingly frustrated by the constant PCR testing, the rolling lockdowns and the travel restrictions – especially as other countries are making it easier to live with Covid.

What has to change for Chinese policy to become more relaxed?

One possibility is that the virus’s virulence will diminish over time and it will cease to be a major public health concern.

This is what happened with the Spanish flu, which when it broke out in 1918 was much more deadly than Covid. Over time, as people became exposed to the Spanish flu, they developed an immunity against it. The 1918 strain began to mutate and evolve in a process called “antigenic drift.” By the 1920-21 flu season, the version that emerged was indistinguishable from the seasonal flu.

Covid is already exhibiting this process, with Omicron being much less deadly than the Delta variant. Figure 6 shows that the global case-fatality rate (the number of deaths divided by the number of reported infections) fell from 9 percent in April 2022 to only 0.3 percent most recently.

 

Figure 6

 

While it is reasonable to expect this process to continue, human beings could expedite it by getting fully vaccinated and promoting herd immunity. Based on research done on Hong Kong’s Omicron outbreak earlier this year, three doses of the Chinese vaccines are needed to effectively prevent severe illness or death.

Currently, fifty-eight percent of the Chinese population has received Covid boosters. While this is better than the G20 average of 50 percent, it lags behind Japan and Korea at 90 and 74 percent respectively (Figure 7). 

 

Figure 7

When I return to Shanghai from my Thanksgiving holiday in Canada, I face 7 days of quarantine in a hotel and three more days of self-quarantine at home. Having been locked down during April and May, I am not looking forward to this. However, I understand that protecting public health is crucial. Moreover, China has achieved outstanding results while only sacrificing marginally more GDP than the most cost-effective of its comparator countries.

Looking ahead, the adoption of more liberal policies will depend on the Chinese people’s willingness to roll up their sleeves and take booster vaccines. They should be fearless, like my 88-year-old mom, who has taken five shots and reported no ill effects.

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Keywords:   China,Covid-19
Mark KrugerMark KrugerMark Kruger is Yicai Global's Opinion Editor and Senior fellow to the Yicai Research Institute. He is also a Senior Fellow at both the University of Alberta's China Institute and the Centre for International Governance Innovation. Mark was formerly a Senior Policy Director in the Bank of Canada's International Department, a Senior Advisor to the Canadian Executive Director at the International Monetary Fund and head of the Economic and Financial Section in the Canadian Embassy in Beijing.