SIM Report: Renewed COVID-19 outbreaks, lockdowns dent China's economic and travel outlook

SIM Report: Northeast Asia, Issue 14

Economic data released for July 2021 showed how renewed waves of COVID-19 infections have slowed China’s economy. The spread of the Delta variant is the main reason for the economic slowdown, with locally developed vaccines thought to be less effective against the strain of the virus. The other factors are commercial losses linked to extensive floods in the densely populated region of central China, global chip shortages, government policies aimed at reining in major technology firms, and environmental controls reducing steel and cement output. The data also indicated lowered consumer confidence, with both domestic retail sales and industrial production coming up shorter than expected.

Besides causing shipping congestion and disrupting supply chains, the spread of the Delta variant across China will cause protracted economic damage unless authorities abandon the zero COVID strategy. Revising the approach to the virus would also likely result in the lifting of international travel restrictions, which foreign companies in China have cited as a chief concern to their ability to deploy and retain expatriate personnel. Current restrictions ban most inbound travel for foreign nationals. The lack of foreign staff and specialist insight has weakened the country’s human capital environment. Barring a revision of the zero COVID approach, the widespread use of more effective vaccines, including mRNA-based ones, would probably allow an easing of international travel restrictions. No foreign vaccines have yet been approved for domestic use.

However, China’s drug regulator recently approved the country’s first mixed-vaccine trial testing the efficacy of combining Sinovac’s vaccine with a DNA-based one developed by US pharmaceutical firm Inovio. India in August 2021 approved the three-dose ZyCoV-D vaccine, the world’s first DNA-based vaccine against COVID-19, for emergency use. The vaccine prevented symptomatic disease in 66 per cent of those inoculated, according to an interim study quoted by the vaccine maker Cadila Healthcare. As the third phase of the clinical trials was carried out during the second, Delta variant driven wave of the virus, the vaccine maker claims that the inoculation is effective against the Delta variant. The development suggests that DNA-based vaccines are likely to have a significant measure of efficacy against the Delta strain of the virus and bodes well for the Sinovac-Inovio combination.

Prior to the emergence of the Delta variant, Chinese authorities in June 2021 had provisionally set a reopening of China’s borders by mid-2022, according to a Wall Street Journal report. However, health experts are currently in disagreement over whether the zero COVID strategy should be maintained or abandoned. Views for or against are bound up in ideological concerns on top of scientific ones. Abandoning of the approach perceived as following Western governance models such as that of the UK and the US, where authorities are opting for an approach of learning to live with the virus rather than eliminating it completely. The seeming prioritisation of political over scientific considerations, lower efficacy of locally developed vaccines, and delays in approving foreign vaccines cumulatively suggest that international travel restrictions will remain in at least the long-term outlook, beyond mid-2022. Stringent travel curbs will continue to impede availability of human capital for foreign companies and dent economic activity, particularly in the travel, tourism, and hospitality sectors.

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