The Stigler Center’s “China Political Economy” webinar series returns Thursday, February 9. Here’s a reminder of what we covered in our first four panels as we turn to China’s new Covid policy.

For two years, China appeared to be the one big economy aptly able to manage the Covid-19 pandemic. While the United States and most of the rest of the world shut down their economies in early 2020 in an effort to stymie the pandemic until they could roll out vaccinations, China implemented a stringent zero-Covid regime of lockdowns and surveillance to control the virus without resorting to bringing its economy to a standstill. China was the only big economy to grow during 2020 and beat out every G20 country but India and Turkey in 2021. As of December 19, 2022, the World Health Organization reported 31,309 deaths in China due to Covid compared to over one million for the United States, a country with a fourth of China’s population. China’s apparent success in dealing with Covid seemed to affirm the neologism that the twenty-first century would belong to the Chinese. However, 2022 bucked China’s ascent out of Covid.

In the United States, Gallup reported in November last year one poll that found 44% of Americans thought the pandemic was over, up from 18% at the same time in 2021. Another survey from the pollster found that only 28% of Americans were somewhat or very concerned about catching Covid by October 2022. US GDP exceeded its pre-Covid peak in Q2 2021. 

Meanwhile, China’s zero-Covid policy has pulled the rug out of consumption and industrial output. One in five Chinese young adults living in the city is unemployed. The continued lockdowns throughout 2022 as the rest of the world adapted to living with Covid spurred massive protests, leading to Chinese President Xi Jinping’s decision to end the country’s zero-Covid policy in November 2022.

Xi’s decision capped a politically tumultuous year for China. In October, Xi broke precedent by receiving a third term as China’s leader. In August, US President Joe Biden passed the CHIPS and Science Act, volleying another fusillade in the ongoing US-China trade war and signaling a ramp up in economic disentanglement.

For the last year, the Stigler Center has sought to investigate these developments and what they mean for the future of China’s political economy. Across four panels, the Stigler Center hosted the experts as they discussed China’s goals for the future, what its crackdown on Chinese tech companies meant for its economy and innovation, how China would move on from Covid, and, lastly, what Xi’s consolidation of power at the Chinese Communist Party’s 20th National Congress would mean for Chinese politics.

In the first panel, Susan Thornton of Yale Law School’s Paul Tsai China Center said that “What China wants is actually pretty simple…Its focus is primarily about its own stability and development.” 

Such an impulse can be seen in China’s crackdown on Chinese Big Tech, the topic of the series’ second panel. The growth of many of China’s star tech companies are “associated with bubbles because their success is not necessarily traced to hardcore technology. Rather, they are viewed as having a first-mover advantage and that may create monopolies and rents and can easily become the target of antimonopoly law and antitrust law,” said Professor Ling Chen of John Hopkins. The platforms’ control of massive amounts of user data and expansion into other industries, such as Ant Group’s move into financial services and the provision of “shadow banking,” threatened to create economic behemoths whose domination would threaten the stability of the Chinese economy. 

“You can’t let these companies run too far ahead if it’s going to create social problems or financial and economic risk that undermines the party’s control,” added Matt Sheehan of the Carnegie Endowment for International Peace during the same panel.

“In other words, any policies that advance economic development and political stability cannot come at the expense of the CCP”

Sheehan’s statement teases out a nuance to Thornton’s maxim: What China, or rather, what the CCP wants, is stability and economic development that enhances its own power and prestige. In other words, any policies that advance economic development and political stability cannot come at the expense of the CCP. Antitrust is first and foremost a tool to protect the CCP, then the consumer.

Professor Minxin Pei of Claremont McKenna College succinctly summarized this policy during the first panel as President Xi “doing everything he can to ensure that…the party controls most aspects of life in China, and any sort of challenge to the party within China would not actually be viable.”

And yet, the CCP has rolled back its zero-Covid policy in response to public outcry, a seeming admission of failure on its part. Like most of the rest of the world, China implemented its zero-Covid policy to buy itself time to vaccinate its population. However, as Professor Yanzhong Huang of Seton Hall University explained during the third panel on China’s zero-Covid policy, the country failed to developed a high efficacy vaccine or even vaccinate its elderly population with its homegrown version. Thus, unlike much of the rest of the world, China could not end its policy without a surge in hospitalizations and deaths.   

Predictably, the end of zero-Covid has led to that very surge. Less predictable was Xi and the CCP’s decision to concede to public opinion and end its policy in the first place. Many of the panelists in the series thought it likely that Xi and the CCP would continue to enforce its policy despite the economic costs. Huang had noted that the CCP had tied the success of zero-Covid to its political system, leadership, and the leaders’ legacies. These took priority to the policy’s socio-economic ramifications. During the fourth panel on China’s leadership transition, Professor Victor Shih of the University of California San Diego wagered that Xi’s consolidation of power lessened the likelihood of the CCP ending zero-Covid.

Huang did suggest, though, that a calculus was at play, and that if the costs of the policy clearly outstripped the benefits of its continuation, the CCP would end zero-Covid. The series of protests in November made clear the aggregating costs of the policy. 

Furthermore, it is also possible that Xi’s ascension to a third term and reaffirmation of his hold over the CCP primarily strengthened his ability to relax zero-Covid rather than guarantee him a veto over any attempts to end it, as some of the panelists thought might be the case. With all possible challenges to his position as leader of the CCP and China removed, the political cost of losing face over the end of zero-Covid became inconsequential.

Nevertheless, the rollback of zero-Covid does reveal the limits of the CCP. Try as it might to drive stability and growth with itself in the starring role, sometimes the world has other intentions. Professor Meg Rithmire of Harvard Business School made this very point in the fourth panel in reference to the ongoing chips war between China and the US. As she noted, after the 2007 financial crisis, China began to invest in strategic tech sectors out of fear of its dependence on foreign supply chains, which could lead foreign countries to weaponize them. However, its strategic investment in technology, including semiconductor chips, has exacerbated, not lessened international tensions, culminating in Biden’s recent CHIPS and Science Act. 

What one might take away from the China series so far is that whereas the CCP is a constant in Chinese politics, it hardly ensures predictability. Calculi change with broader political and economic trends, and sometimes the preservation of power requires abdication. Certainly, the rollback of zero-Covid does not herald a reduced role for the CCP in China’s society or economy. If anything, it foreshadows that as China and the rest of the world head towards low growth or even recession in 2023, the CCP will have to divinate how to contend with what most of the world has already dealt with: rising Covid cases and deaths and plummeting economic output. How the party addresses these twin catastrophes will have ramifications for itself, its people, and the world beyond its borders.

The panel returns Thursday, February 9, with an in-depth look into China’s new Covid strategy. You can register here to attend. For a sneak peek, check out this week’s Capitalisn’t episode, where Luigi and Bethany ask Chicago Booth’s Chang-Tai Hseih if the China Miracle is coming to an end. Hseih will be one of the panel members on February 9.