The non-zero cost of zero-covid


THE TRADE The war between America and China paradoxically brought some citizens of the countries closer together. Ben Kostrzewa, commercial attorney for Hogan Lovells, moved from Washington to DC, to Hong Kong to help its corporate clients deal with tariffs, sanctions and export controls. He traveled to the mainland two to three times a month. If the time was right, he could pass border controls in 20 minutes. “I got to know these border guards very well,” he says.

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The pandemic changed all that. In the first half of 2019, China’s busy agents recorded over 344 million border crossings between the mainland and the rest of the world (including Hong Kong). In the first half of this year, that number fell by over 80%, according to official statistics. Mr. Kostrzewa has not visited for almost 22 months. “It’s fun to talk about it in the past tense,” he says.

Talks in a future form between Hong Kong and the mainland have so far not made the journey between the city and the rest of China easier. But officials are now saying a pilot program could soon allow small numbers of vaccinated people to travel to the mainland without quarantine. If the system works, some of Mr. Kostrzewa’s favorite checkpoints in Shenzhen could reopen by June, they said South china morning postalthough there would be quotas for travel.

For the rest of the world, a visit to China will remain an ordeal. It is like arranging a “state visit”, says a banker who used to be out 30 times a year. The documentary requirements can be tedious and contradicting. A delegation of senior business people visiting Shanghai was asked for their elementary school certificates. After the bureaucratic hassle, the boredom of the quarantine awaits: At least 14 days, typically in a hotel of your choice. A well-connected couple were offered at least separate rooms. They took it without hesitation.

The benefits of China’s zero-covid strategy can be measured in terms of lives saved and infections averted. The economic costs of the country’s self-isolation are harder to quantify. The travel restrictions make life harder for the international “intermediaries” who get cross-border business up and running, argues an investor in Shanghai. Distance communication can keep relationships going, but some things are better done face-to-face. The investor used to get to know his managers over dinner, drinks and cigars. “If you spend three hours a night together, you’ll know the guy by the end of that week.” Nobody has the stamina to replicate this on Zoom.

Some know-how is also tacitly embodied in people or teams. In order to convey this know-how, it is necessary to move the heads that carry it. According to a study of American travelers by Mariacristina Piva of the Università Cattolica del Sacro Cuore and her co-authors, increasing spending on business travel by 10% increases productivity in the sector visited by 0.2-0.5%. Another study by Michele Coscia from the IT The University of Copenhagen and Frank Neffke and Ricardo Hausmann from the Harvard Growth Lab used aggregated, anonymized Mastercard data to map these mental movements. They estimate that China’s economy would be 13% smaller if it hadn’t benefited from the know-how disseminated through international business travel. Visitors from Germany and South Korea made the largest contribution (see graphic).

Foreign direct investment in China has remained strong so far thanks to the early economic recovery from the pandemic. And few multinational companies are going. Some foreign companies can even locate activities outside of China in order to continue doing business there. According to the Chamber of Commerce of the European Union in Shanghai, companies are closing their hatches and bringing more of their supply chain ashore as geopolitical tensions, Covid restrictions and new laws restrict cross-border data exchange. “Companies could be forced to operate two different systems: one for China and one for the rest of the world,” says Bettina Schön, Vice President of the Chamber. “It’s going to be terribly expensive.” It’s not that the world is leaving China; more that China is becoming a world of its own.â– 

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This article appeared in the business section of the print edition under the heading “Siegel des Reiches”


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