The End to China’s COVID-Zero Policy

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The zero-COVID measures enforced by China had been seen to be effective for a period of time, but as the world learned to live with COVID China had upheld the stringent measures. The measures, which had an impact on businesses and individuals, had restricted travel and impacted global supply chains . With the recent developments and the growing economic impact of the zero-COVID policy, China has now pivoted to ‘living with COVID.’

China’s Pivot in Its Zero-COVID Policy

Changes in Policy

Under the zero-COVID policy, the government implemented measures to maintain the total number of cases in the country as close to zero as possible. To do this, it enforced centralized quarantine for COVID-positive patients and those who were in close contact with them. Immediate lockdowns of housing compounds and apartment buildings were also common if the area has been found to have a positive patient. During this period, individuals were subject to routine PCR testing as well as strict travel restrictions that had a negative impact on business operations.

In the early stages of the pandemic China’s zero-COVID policy was highly successful, and the country became a model for other countries battling the pandemic. However, the appearance new COVID variants tested the limits of the COVID measures of the country. By 2022, the mutated versions of the virus had become highly contagious and a rise in positive cases became news multiple times that almost all provinces in China had difficulty maintaining zero-case records.

The long-term feasibility and effectiveness of the zero-COVID measures were put into question. The growing fatigue and frustration of the general population and the continuous outcry from both local and foreign businesses led the government to pivot from its rigid COVID strategy.

Announcement for the Relaxation of Policies

After more than 2 years of enforcing the zero-COVID policy, China has changed its stance that it should live with the virus. In December 2022, the National Health Commission posted new measures that effectively ended the country’s zero-COVID policy, a move that has been welcomed by businesses and individuals nationwide.

Policies that have Changed

Here are the restrictions removed by the current COVID strategy in China:

  • Halting of Mandatory Centralized Quarantine

People with no symptoms or mild symptoms are now allowed to recover at home. They only need to isolate and get 2 consecutive negative tests on the 6th and 7th days of their week-long quarantine period. They can still go to a designated centralized quarantine facility; however, this is now voluntary.

  •  Lockdowns have been Ceased

High-risk areas will now no longer be confined or restricted and the quarantine rules that were previously in place have now been abolished.

  • Voluntary Testing

People who need to be tested are now allowed to take a rapid antigen test instead of only the PCR test, except for healthcare workers and those working in high-risk professions. Citizens are no longer required to show their health code and a negative PCR result when entering public establishments and premises.

  • Domestic Health and Travel Codes are No Longer Needed

Aside from health codes, travel codes are not required to get from one province to another, significantly easing domestic travel.

  • No Mandatory Quarantine Period for Inbound Travelers

There is now no mandatory quarantine for people arriving in the country. The previous period, which started at 21 days, and which was subsequently reduced, had been a large deterring factor for inbound travel.

  • Reduced PCR Testing

Travelers heading to China are required to take only 1 PCR test 48 hours before their departure. They do not need to present their health code if they tested negative for the virus.

  • Cancellation of the Circuit-Breaker Mechanism

Travelers from overseas can rest assured that the risk of their flights to China getting canceled due to a single infected person is now eliminated – in light of the new COVID policy. Flights no longer need to be subject to disruption, marking an important step forward for travelers’ stability and peace of mind.

While China has lifted several restrictions, it has retained quite a few impactful policies when it comes to quarantine, travel, and visas.

For example, the country is not yet open to receiving tourism. This, along with the considerably high prices of flight tickets for those already with visas, continues to deter the resumption of international travel in the country.

The issuing of visas is still on hold. Whether the travel is for business trips, diplomatic services, or personal purposes, international tourism remains off-limits in China.

Living with COVID – Effects of the New Measures

The Effect on Civilians, Travelers, and Businesses

The surge in the number of positive COVID cases prevents people from fully returning to normal activities, since they are afraid of getting infected.

Businesses that require face-to-face and in-person interactions, like gyms and restaurants, will continue to face challenges in the coming months. The lifting of restrictions was a way to boost spending but with the surging cases, consumer spending has started slow but is expected to gradually grow as people get more accustomed to living with the virus.

Supply Chain Disruptions

Manufacturers in China had set up their operations in a campus-like facility where different arms of the supply chain operate. This setup leaves them vulnerable to an outbreak, since the different nodes of the supply chain may get affected even if only one department has active cases. What happened at the Foxconn factory (aka iPhone city) in Henan province is an example of this case wherein the outbreak disrupted the entire supply chain, leading to the shortage of availability of iPhone 14 worldwide.

The Toll on the Labor Market

The increasing number of cases poses a risk to companies that need manpower. Labor shortages are to be expected, especially in industries with a high risk of exposure such as retail, catering, healthcare, and delivery services to name a few.

Although there is an increased risk of getting infected among frontliners worldwide, the danger to China’s workforce in certain industries is even greater. Laborers, especially those in the manufacturing and construction industries, live in dorms and share rooms with others, meaning there is a bigger risk of spreading the infection.

Youth employment is also an issue as unemployment rates soar to around 20%. Joblessness among 16 – 24-year-olds is more than 3 times the national rate. Fresh graduates are struggling to find employers that will hire them amidst the economic downturn.

Effects on Business Confidence and Future Plans for Economic Growth

Businesses are optimistic about the dismantling of the zero-COVID policy, but the threat of economic disruption still looms as cases rise across the country. Experts expect that the next 6 months of 2023 will be volatile as infections surge, businesses run out of supplies, and workers stay at home. Many experts agree that China has a negative short-term outlook, and the re-opening will be similar to what other Asian economies experienced when they reopened their economies.

Current COVID Situation and its Impact on China’s Economy this 2023

The Chinese government expected a surge in cases after the lifting of restrictions, and it did as Beijing, the country’s capital, saw 22,000 clinic visits within a week – a 16-fold increase compared to the numbers before restrictions were lifted.

Several regions across the country also experienced a shortage of fever-reducing medicines. As a consequence of the spread of the virus there has also been a shortage in staffing as more people experienced infection by the sudden relaxation of restrictions.

While the easing of restrictions is aimed at improving economic recovery, the surging number of cases seems to have offset the decision to end the zero-COVID policy. Major activity indicators are expected to remain weak as businesses become cautious in continuing operations due to the risk of infection.

People in large cities like Beijing and Guangzhou are yet to go out and be back to their normal daily activities. Despite ‘normal’ pre-pandemic life not yet returning, there is a significant increase in domestic flight bookings and hotel reservations. The government projects that the economy for both business travel and leisure will rebound once the first wave of infections after the lifting of restrictions subsides.

The Bumpy Road Ahead

With the challenges that continue to appear from lifting COVID restrictions, the government is expected to miss its economic target for 2023. Local governments are under immense pressure as they need to boost spending on COVID control measures while squeezing what is left of their limited budget. This means that the first few months will be bumpy as the government fights to regain control over the situation.

The rebound expected of the Chinese economy will take a few more months to fully come to fruition. Experts say that the best outcome for China is that the initial COVID impact will last only 3 months. However, they believe that it will be in the 2nd half of the year when China will experience a more meaningful rebound — one that will jumpstart the growth of the economy for the rest of the year.

Managing Your Business in China

China may have relaxed its COVID policies, but the repercussions and challenges that come along with this action can have a huge impact on businesses.

There is always opportunity in times like these, and if you plan to establish your business presence in China, MSA is the most ideal partner for you. We offer a wide range of services including business set up, accounting and tax filing, HR and payroll, financial advisory, and more. Contact us right away and let us help you.