Zero-COVID, zero growth?

By Daniel Brown
ABA Data Bank

New research from the Federal Reserve Bank of New York highlights the challenges associated with China’s desire to simultaneously maintain high economic growth while imposing strict COVID-19 measures as part of its “zero COVID strategy,” or ZCS.

Given that local officials have discretion to strengthen or loosen restrictions in their jurisdictions, containment efforts are often targeted and do not generate international headlines, making them difficult to identify. The researchers were able to quantify the severity of local restrictions by examining intercity highway traffic from AutoNavi (also known as Gaode), a popular Chinese GPS mapping and navigation service. The researchers found a correlation in China between significant declines in mobility of particular cities and corresponding spikes in COVID cases in those cities. Moreover, the two most prominent examples of lockdowns, Wuhan in early 2020, and Shanghai in the spring of 2022, are particularly pronounced in the traffic data, both showing 90 percent declines in traffic from pre-COVID levels.

The researchers illustrate the economic impact through measures such as seasonally adjusted retail sales, manufacturing sector purchasing indices, and new property construction starts. They found that while declines in economic activity associated from the initial 2020 lockdowns were short lived, more recent lockdown measures resulted in more of a downward trend in economic activity starting with the Delta variant in the middle of 2021. For example, while the manufacturing index exceeded pre-COVID levels only a few weeks after the initial 2020 lockdowns, the index has been in decline and has not made a new high since the middle of 2020. A similar theme is also present for construction starts in China, with highs formed toward the end of 2020, but experiencing a significant decline over the last year and a half.

As a result, the New York Fed researchers conclude that for the foreseeable future, a ZCS policy for China will make it difficult for the country to achieve its official economic growth target of about 5.5 percent.

Daniel Brown is an economist and senior director in ABA’s Office of the Chief Economist.