Shanghai deflates the Chinese Dream

COVID-19 outbreak in Shanghai
Workers in protective suits work at a residential area under lockdown amid the coronavirus disease (COVID-19) pandemic, in Shanghai, China April 17, 2022. REUTERS/Aly Song - RC2VOT94H4Q1

HONG KONG, April 19 (Reuters Breakingviews) - In China, the Shanghainese are known for three things: their sweet cuisine, their love of shopping, and their sense of superiority over fellow countrymen. So some Chinese people might be quietly enjoying the sight of the city’s populace howling out windows in frustration after being forcibly locked in their flats up for nearly three weeks. But the mess in Shanghai ultimately offers nothing for anyone to cheer about.

During the first wave of the Covid-19 pandemic in 2020, local officials contained the virus without resorting to locking down swathes of the city. Success appears to have fed complacency. The highly contagious Omicron variant was barely slowed by initial attempts to contain it early this year.

But the tougher approach mandated by Beijing, including forcible confinement of most of the city’s 26 million residents, separating infected children from parents plus massive censorship of online complaints, hasn’t gone down well. Expecting the lockdown to be brief, few residents stocked up on adequate necessities, nor was the local government prepared to feed a population spread over 6,000 square kilometres. Social media is full of small acts of defiance.

While the city has reported only ten deaths caused by Covid so far, the “dynamic zero” policy of stamping out transmission at all costs has seen hospitals put off treating more severe conditions. In the end this might cause more deaths than save lives. read more “I’d be better off in jail,” said one elderly man filmed ranting at health workers in hazmat suits. “At least in jail they’d give me medicine.”

Economically it is a nationwide catastrophe. Shanghai’s $700 billion economy contributes roughly 5% of national output. It hosts China’s largest stock market, the world’s most active port by container throughput, a bevy of multinational headquarters and Tesla’s (TSLA.O) Gigafactory. read more


Plenty of other cities are under similar restrictions, but Shanghai’s crisis is uncomfortably symbolic. The Chinese Communist Party was founded there in 1921, and it was a refuge for starving peasants during the massive famine Mao Zedong set off in 1958. Its cosmopolitan, wealthy residents were among the biggest beneficiaries of economic reform and thus some of the regime’s staunchest supporters. Now even famous wealthy investors must forage for food in online chat groups.

More broadly, the failures highlight how the powerful are starting to experience the downsides of President Xi Jinping’s rule. When a central policy goal fails, state media typically shunts blame onto individual local officials for moral or intellectual failings - as with those who fumbled the response to the early Covid-19 outbreak in Wuhan. But Shanghai was supposed to be the best-run city in the country.

The mismanagement also adds to worries that the intellectual capacity of the Chinese civil service has been degraded under Xi. Years of crackdowns have taught bureaucrats that overreacting is less risky than under-reacting, so every sparrow gets shot with a cannon, as it were. Anxiety about falling birth rates saw officials put the entire after-school tutoring industry out of business, for example, and the technology sector has been repeatedly pummelled. Financial markets are reeling and unfavourable views of China are at historic highs overseas, yet nobody gets publicly punished for going too far.

The harsh measures deployed in Shanghai could put the whole country into recession and cause a rise in the overall death rate if replicated nationally. They also might not work: In Xian, for example, the virus snuck back into the population three months after a citywide lockdown appeared to quash it. Nor can an aspiring global superpower keep its borders closed indefinitely.

Signs of discontent include increasing interest in emigration among wealthy individuals. For the rest of the educated middle class, though, passivity and risk aversion are more likely responses. Recent college graduates' revived enthusiasm for low-paying but safe government jobs over technology companies or startups is a worrying trend; the country needs entrepreneurs, innovators and a vibrant private sector if it wants to reduce dependence on U.S. technology and universities. But the efficiency gains the People’s Republic won by joining the World Trade Organization in 2001 have been used up; an analysis by economist Harry Wu suggested total factor productivity growth turned negative after the financial crisis. State enterprise reform has stalled. China cannot afford Japanese-style malaise when its gross national income per capita is only 40% of Japan’s.

Xi’s trademark “Chinese Dream of National Rejuvenation” was supposed to be about improving ordinary people’s lives. But the government is demanding more sacrifices with diminishing economic returns. Covid-zero might not attainable, yet it remains a useful propaganda tool to highlight Western democracies’ failure to contain the virus, so the government is stubbornly sticking with it despite rising costs. Unfortunately, in the battle against Covid, Chinese people are getting sick of winning.

Reuters Graphics
Shanghai's GDP per capita has outgrown the national average

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. The story is refiled to add link in fourth paragraph.)

By Pete Sweeney


- The Chinese financial hub of Shanghai said on April 19 that seven people infected with Covid-19 died on the previous day. That was up from three deaths on April 17.

- For April 18, the city reported 17,332 new local asymptomatic coronavirus cases, down from 19,831 on the previous days.

- Manufacturers including Tesla began preparing to reopen their Shanghai plants as China’s most populous city speeds up efforts to get back to normal after a nearly three-week Covid shutdown, Reuters reported on April 19.

Editing by Robyn Mak and Katrina Hamlin

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Asia Economics Editor Pete Sweeney joined Reuters Breakingviews in Hong Kong in September 2016. Previously he served as Reuters' chief correspondent for China Economy and Markets, running teams in Shanghai and Beijing; before that he was editor of China Economic Review, a monthly magazine focused on providing news and analysis on the mainland economy. Sweeney came to China as a Fulbright scholar in 2008, and in that role conducted research on the Chinese aviation industry and outbound M&A. In prior incarnations he helped resettle refugees in Atlanta, covered the European Union out of Brussels, and took a poorly timed swing at craft-beer entrepreneurship in Quito even as the Ecuadorean currency collapsed (not his fault). He speaks Mandarin Chinese, at the expense of his Spanish.