China Risks Slowdown as COVID-Zero Policy U-Turn Threatens to Bring a Million Deaths

China could face a million COVID deaths after abruptly relaxing strict quarantine measures in place since 2020, dimming the outlook for an already slumping economy that had been expected to prop up global growth next year.

The Communist Party leadership ended a two-day conference Friday with pledges to boost an economy expected to expand by 3% this year, less than half the 8.1% pace in 2021. Meantime, Beijing's streets are deserted and pharmacy shelves are mostly empty as residents wait in lines to be tested or treated.

Vanguard Asia-Pacific Chief Economist Qian Wang is a bit more optimistic, forecasting 4.5% growth for 2023. Still, she said that a rapid pandemic spread is the principal risk to her outlook.

A "super-wave of infections" could prompt renewed lockdowns or else overwhelm China's healthcare system, she said. "Things may have to get worse before they get better,."

The about-face on the nation's COVID-Zero policy already appears to be aiding a new wave of infections, spurred by a low vaccination rate among the elderly with a domestic vaccine less effective than those developed in the West, and complicated by a shortage of antiviral medicines, medical equipment, and treatment facilities.

As Chinese New Year approaches next month, the nation of 1.4 billion is about to embark on its biggest travel holiday without the herd immunity developed through mass exposure to the virus. A toll of COVID deaths and serious cases could sabotage the economic re-opening at the outset.

Healthcare workers in China are facing increased caseloads after authorities ended two years of public messaging that COVID is a fatal illness to be avoided at all costs, more recently saying the Omicron variant of the virus is no more deadly than the flu.

China's National Health Commission said it has ramped up vaccinations and the stockpiling of ventilators, drugs, and other medical supplies in rural areas, while Henan, a province with a population of nearly 100 million, canceled leave for medical workers through the end of March.

Despite those efforts, the rapid re-opening is likely to result in nearly 1 million COVID deaths across China, according to a study by Hong Kong researchers. A separate projection by The Economist magazine puts the expected death toll from an unchecked spread at 1.5 million.

COVID has killed nearly 1.1 million Americans to date, out of a population less than a quarter that of China's. But the U.S. deaths have come over the course of almost three years, while China has reported just 31,000 deaths since the start of the pandemic, and now risks approaching the U.S. total in a matter of months.

China's leadership is risking such costs after COVID-Zero proved unsustainable. This year's extended mandatory lockdowns of some of China's largest cities and industrial hubs compounded the fallout from a property market crash. They also accelerated the offshoring of manufacturing out of China to Southeast Asia and elsewhere.

Recent COVID lockdowns and related protests at the Zhengzhou, China plant manufacturing iPhones for Apple (AAPL) were estimated by one analyst to be costing the company $1 billion in weekly sales amid a quarterly production shortfall of 6 million units. Tesla (TSLA) lost three weeks of output at its Shanghai plant as a result of a lockdown in March and April.

A member survey by the American Chamber of Commerce in Shanghai in June found 26% of the participating manufacturers were moving supply chains for exports out of the country. A quarter of the consumer and service companies surveyed and 20% of the manufacturers had pared their planned China investments.