What the Shanghai lockdown tells us about China’s future

China’s large-scale lockdown in Shanghai, the country’s largest urban economy, will have far-reaching economic and social costs. More than just a public health measure, the move should be read as a reassertion of centralized control and a partial reversal of the devolution of power that took hold after 1978.

CHICAGO – After acknowledging that it was moving toward a more nuanced Covid-19 policy, Shanghai – a city of 26 million people – came under pressure from the Chinese government to go into a lockdown in late March and has only just begun to ease restrictions after nearly a month.

The official reason for this drastic policy change is that citywide testing revealed high infection rates. However, one wonders why the authorities did not opt ​​for a less expensive alternative to a complete closure.

After all, Omicron, which now accounts for nearly all new cases globally, has only mild effects in vaccinated people. And while China’s elderly population has a surprisingly low vaccination rate (around 60%), immunizing this segment of the population is well within the country’s messaging and mobilization capabilities.

In addition, complete closures have high economic costs. Economists estimate that the closure of Shanghai could reduce China’s total GDP by 4% this year. And the Chinese authorities created additional economic uncertainty by suddenly going from a four-day lockdown to an indefinite one. Shanghai officials did not have time to set up the necessary infrastructure to maintain a prolonged lockdown, and residents were unable to stock up on enough food before being confined to their homes. The fact that the city has registered only 17 deaths (as of April 20, 2022, although 39 deaths were reported on Sunday the 24th, the highest number since the confinement began) has increased public anger and frustration.

Two facts are crucial to understanding the justification for the lockdown. First, while the Chinese government aspires to be a world leader in vaccine production, Chinese vaccines are considered less effective than those produced and administered elsewhere. If a relaxation of the lockdown resulted in higher death rates among vaccinated Chinese (compared to vaccinated populations elsewhere), China would feel deeply and publicly ashamed.

Second, there is constant competition within the Chinese leadership between those who believe in strong centralized authority and those who prefer a more decentralized government. After the disastrous one-size-fits-all policies of the Great Leap Forward in the 1950s, the post-1978 reform government delegated decision-making to regional governments, which were given much more autonomy over economic policy and they were encouraged to compete with some others. Fiscal federalism was highly effective in promoting growth, but it also gave regional governments a taste for independence.

To counteract this trend, the central government has invested much of its growing revenue since the early 2000s in centralization mechanisms, such as expanding the bureaucracy and strengthening tax enforcement. But, because the interests of regional governments are not always aligned with those of the national government, recentralization has been unpopular in many provinces. A recent example is the trade war with the United States, which generated nationalist support but hurt the economies of coastal manufacturing cities like Shanghai.

The central government’s argument for recentralization is that it allows the Chinese authorities to mobilize resources and make investments that are good for the country but that local governments would never do on their own. One example is China’s rapid infrastructure development. A highway connecting two cities can bring great benefits overall, but if a town along the route opposes its construction and has a say in the matter, the project may not go ahead. China’s strong centralized decision-making avoids such problems.

The most publicized example of beneficial centralized power is China’s response to Covid-19 during the first phase of the pandemic. Through rapid lockdowns, mandatory quarantines and mass testing, it has achieved some of the lowest infection and death rates in the world, a remarkable feat for a middle-income country with one of the highest population densities in the world.

Shanghai, however, refused to impose a massive lockdown. As well as being China’s largest urban economy and the shining jewel of post-1978 reforms, the city has a history of free thinking.

Reflecting the post-Opium War melting pot of European settlers and adventurers, Jewish and White Russian refugees, Chinese triads and other groups, it has long been the place where East meets West. Modern political leaders, from the founders of the Communist Party to Kuomintang figures such as Sun Yat-sen and Chiang Kai-shek, as well as some of the greatest Chinese writers of the 20th century (Lu Xun, Qian Zhongshu, Eileen Chang) have had deep ties with the city.

Today, Shanghai residents are among the most educated, well-traveled, and wealthiest in China. During the 1990s and early 2000s, the city often experienced per capita income growth rates of up to 28% a year, generating massive revenue for the central government in Beijing and accustoming it to greater influence. about their affairs than most others. cities When it comes to economic and administrative management, Shanghai residents often feel superior even to Beijing.

Deserved or not, these beliefs, combined with the importance of Shanghai’s economy, mean that the central government must manage the city delicately. That is why Shanghai was previously allowed to deviate from the nationwide lockdown policy. He pursued a more flexible approach, locking down individual blocks rather than the entire city. And when the surge in Omicron cases became inevitable, he distributed (voluntary) home antigen tests, a move more likely to be seen in Western countries than elsewhere in China.

The fact that Beijing eventually overrode Shanghai’s leadership can be seen as a sign that the centralizers are asserting their power over the advocates of decentralized decision-making. But who will take the blame for the extensive economic and social costs that have resulted from the lockdown? Will it fall to Shanghai for allowing infection rates to rise, or to those who forced the city to lock down suddenly? The answer will be an indication of the future of China’s recentralization efforts.

The author

Professor of Managerial Economics and Decision Sciences at Northwestern University’s Kellogg School of Management, she is the founding director of the China Econ Lab and the Northwestern China Laboratory.

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