The End of Zero-COVID in China: An Update on What’s Happening Now

When you manufacture overseas, it’s important to keep up to date with current events in the countries where you manufacture. Changes to the economy, politics, public health, and more in a country can affect the factories you partner with—and, in turn, your business.

At Flywheel, we’re here to help you stay informed on world events and changes that could affect your business. Whether it’s supply chain risks, shifts in the retail world, or governmental updates, if it pertains to overseas manufacturing, we want to make sure you know what’s happening.

You’ve likely seen the headlines that China recently ended their zero-COVID policy, opening up the country and working to get back to life as usual. In this blog, we’re offering an overview of these changes. Read on to learn more.

When and Why Did China’s Zero-COVID Policy End?

China’s nearly three-year zero-COVID policy was an attempt to keep COVID-19 infection rates as close to zero as possible throughout the country. But this policy’s tight restrictions—including regular widespread lockdowns, mandatory mass testing, contact tracing, and quarantines—began to wear on China’s economy and people.

In November 2022, Chinese leaders started loosening restrictions somewhat, toning down the more extreme measures of the policy and moving toward a gradual reopening. Then in early December, zero-COVID was abruptly dropped. Isolation facilities and portable testing booths were taken down, along with a health smartphone app that was used for contact tracing.

There seem to have been a number of factors that led to this decision: 

Pressure from the public mounted, with a wave of protests sweeping the country at a scale not seen since the demonstrations of the late ‘80s. Pressure from businesses was growing as well, including Foxconn, a leading assembler of iPhones, who sent a letter to Chinese leaders asking them to reevaluate their policy.

At the same time, economic pressures were on the rise. Repeated lockdowns had dealt a blow to the economy, shutting down factories for weeks at a time and leaving millions of people unable to work. Unemployment rates reached a new high, especially among young workers.

Lastly, the Omicron variant was getting past zero-COVID’s defenses, stretching the effectiveness of the testing infrastructure that had previously kept the virus at bay.

What Effects Has the End of Zero-COVID Had?

COVID-19 Outbreaks

Since the abrupt ending of the zero-COVID policy, China has been hit with COVID-19 outbreaks across the country, with millions of infections happening in a short period of time. 

This has led to a struggling healthcare infrastructure, with overwhelmed hospitals and shortages of medicine needed to combat the sharp rise in infections. The initial wave had peaked by the end of January in major cities, but infections were still rising in rural China, where health facilities are less robust.

There were concerns over another wave after Lunar New Year festivities, with so many people traveling to see family in more rural parts of the country. Thankfully, that feared second wave didn’t materialize. As of last week the Beijing Centre for Disease Control and Prevention were looking to the results of a serum survey (a common tool used to assess infection rates and levels of immunity after a wave of illness) to help them determine the best response to future outbreaks. 

China has a high vaccination rate (91%), but the vaccine they’re using isn’t as effective as others, and isn’t protecting against severe disease as well as was hoped. There have been nearly 90,000 deaths reported since December.

Improving Financial Markets

On a more positive note, the end of zero-COVID has meant a resurgence for China’s economy. 

As of early February, stocks were staging a big turnaround (though they are still down from their peak in 2021). The MSCI China Index began to rise last October, as rumors of potential easing of zero-COVID policies started spreading. It went on to surge 50% from October to January. Foreign investors are beginning to come back as well (particularly hedge funds).

It’s likely that companies who were most affected by restrictions (including travel and consumer stocks) will see a big rebound in earnings. Broader economic recovery for China will depend on several factors, including how well the housing market bounces back and if exports remain strong.

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