China’s dynamic covid-zero policy and the Chinese economy: a preliminary analysis

ABSTRACT Shanghai’s lockdown from April to May 2022 attracted worldwide attention. While the rest of the world has generally chosen to live with Covid-19, China still sticks to its elimination strategy, i.e. the dynamic Covid-zero policy. This paper considers this policy and its economic implications. First, this study describes the policy and provides a quantitative description of its development based on Google Trends data and the Baidu index. Second, we explore the economic impacts of the March – May 2022 lockdown and concludes that they were less severe – and the policy responses were also smaller – than those in early 2020. However, one major difference is that Chinese household and corporate sectors have much weaker expectations than in early 2020, and as a consequence, policy responses may also be less effective. Third, from the perspective of stock markets, which can be seen as an expected value of all possible scenarios in the future, this study finds that China’s Covid-zero policy is considered to be detrimental to the economy.