The “empty flat” philosophy proposes doing the bare minimum to get by – and China has none of it. Local governments have taken the offensive to contain outbreaks of the hyperinfectious variant omicron. For them, doing nothing is scarier than Covid.
Think of Shanghai, the economic center of 25 million inhabitants that has come to a standstill since the end of March. The number of cases has grown exponentially and almost all are asymptomatic. But city leaders are unwilling to let the virus run its course — even as residents run out of patience. “We must dare to draw our swords and fight,” the top party branch in Shanghai wrote to members late Wednesday, the same day the number of new cases in the city rose to more than 19,900.
The government thinks it still has a narrow window to contain the virus after capacity building over the past two years. The city has figured out how to process 4 million PCR tests daily, and since it samples about one in 10 swabs, Shanghai could theoretically test its residents every day. Meanwhile, Shanghai is rapidly expanding the space to quarantine those who test positive. It has in recent days converted two large exhibition halls into makeshift hospitals and will nearly double its capacity to about 77,700 beds. Officials are also looking at tapping state hotels and entertainment venues in the future.
Meanwhile, cities that make up a quarter of China’s gross domestic product are subject to some form of movement restrictions, Goldman Sachs Group Inc. For example, Chengdu, a commercial center in the southwest, requires travelers from Shanghai to home quarantine for seven days. No place wants to be seen as “losing face” like Hong Kong, which is largely portrayed by the Chinese media as throwing in the towel too soon.
Where does this leave investors? So far, China has largely maintained its industrial production and its central role in the global supply chain – thanks in large part to a so-called closed-loop system, where factory workers are locked in their workplaces and sleeping in makeshift dormitories. And it’s not just factories – trading floors are filled with sleeping bags with staff who spend all their time in the offices keeping operations going.
However, the same cannot be said about the consumer. E-commerce and online food ordering, which used to be part of the everyday lives of spoiled city dwellers, have slowed down dramatically, even with everyone locked up at home. Demand is increasing, but logistics are now a major problem. Every day, delivery drivers in Shanghai like Meituan – whose Hong Kong-listed shares are down about 30% this year – must show negative results in both PCR and rapid antigen tests before they can go to work. Meanwhile, some online merchants outside of Shanghai have stopped shipping their products to the city, fearing that workers in their logistics chain could be caught in the lockdown. Each district has its own permit, which vans must present to be allowed to pass through.
As such, this kind of prolonged lockdown makes it very difficult for investors to come up with a fair value for the likes of Alibaba Group Holding Ltd. crackdown, analysts also continue to lower their earnings. No one knows when China will give up the fight.
A month ago, when Hong Kong was suffering from an ommicron outbreak, I saw a joke circulating on social media. It reads: “Except for China, which is still standing upright, other countries have chosen to lay flat. Only Hong Kong does crunches.” Now it’s China’s turn, except to go back to Covid zero, it will have to try extra hard and hurt the whole body.
More from Bloomberg Opinion:
Shanghai’s Way Too Soft Covid-Zero Policy: Shuli Ren
We must wear masks on the subway forever: Justin Fox
China’s respect for seniors backfires in the Covid era: Shuli Ren
This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist on Asian markets. She previously wrote on markets for Barron’s, after a career as an investment banker, and is a CFA charterholder.
More stories like this are available at bloomberg.com/opinion