After largely keeping out Covid-19 for two years, China’s largest city is battling an outbreak numbering over 100,000 cases. And while the Shanghai government has yet to acknowledge any Covid fatalities, spiking deaths at some elderly care facilities suggest that the numbers are there, whether officially acknowledged or not.

       Is this a sign of things to come in the rest of China?

       Not necessarily, but if the government doesn’t move quickly to vaccinate and boost its elderly, and start spending much more heavily on hospital capacity, then the human and economic consequences could be disastrous.

       Events in Hong Kong and Shanghai have demonstrated that a “zero Covid" strategy can look very effective for a long time—until suddenly it isn’t, either because a more infectious variant changes the game or because success itself breeds overconfidence.

       To be sure, mainland China has tools that Hong Kong lacks. These include the network of neighborhood party committees that have formed the backbone of grass-roots monitoring and enforcement, the state’s greater coercive and surveillance capabilities writ large, and the ability to mobilize enormous manpower in a pinch to build hospital space, conduct testing, or deliver food. The political stakes on the mainland, where Communist Party General Secretary Xi Jinping is poised to bid for an unprecedented third term later this year, are also arguably even higher than in Hong Kong.

       Shanghai’s struggle to deliver food to residents and staff medical facilities shows that these advantages can crumble quickly, however, if Omicron’s exponential growth isn’t halted in its early stages. At the very least China will pay an enormous economic price to bring the current outbreak under control. Cities under complete lockdown or very harsh control measures as of early April accounted for about 13% of China’s economy, according to Gavekal Dragonomics. China’s target of “around 5.5%" growth for 2022—which looked ambitious before the recent outbreak—now looks implausible.

       More important, even assuming this outbreak is controlled, the idea that China can achieve a “soft exit" from “zero Covid" at some future date without large-scale fatalities is seeming increasingly questionable.

       China invested heavily in healthcare for the past several years—to the tune of 30% growth in 2020 and 25% last year, both far faster than overall fixed asset investment, which only grew in the single digits both years. But in some important respects, that rapid investment is coming from a very low base. China had only 4.4 intensive care beds per 100,000 residents in 2021, according to Morgan Stanley—compared with around 11 in South Korea and the U.K., and 26 in the U.S.

       Mainland China also has some of the same weaknesses that led to Hong Kong’s disastrous Omicron outbreak. As in Hong Kong, and for reasons that aren’t entirely clear, a large proportion of the elderly remain unvaccinated or only partially vaccinated—about half of the population over 80.

       In Hong Kong, where government health expenditures are slightly higher than China’s as a percentage of gross domestic product, hospitals were easily overwhelmed by large numbers of elderly patients once Omicron broke through. Hong Kong also has 7.1 ICU beds per 100,000 residents, according to a February article in the Hong Kong Medical Journal—significantly more on a per capita basis than China. General government expenditure on healthcare in China amounted to less than 3% of GDP in 2019, according to the World Bank, below the upper-middle-income average of 3.3% and well below the nearly 8% typical of developed countries.

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       China has also declined to approve foreign mRNA-based Covid-19 vaccines, such as those developed by Pfizer and Moderna that appear to offer superior protection against the virus compared with vaccines developed using older technologies—including China’s own. The rationale has apparently been to create room for Chinese businesses to develop their own mRNA vaccines, a venture that could eventually be successful. By buying time for China’s domestic vaccine entrepreneurs, however, Beijing may have squandered time to get its most vulnerable vaccinated with the best protection available.

       For now, China’s outbreak appears to have only reached truly dangerous levels in Shanghai and the northern province of Jilin. But the days of “zero Covid"—so successful at preventing deaths and economic damage early in the pandemic—are now clearly numbered. Omicron is too contagious and the economic cost of containing it is unsustainable. If the Chinese government doesn’t use its remaining time to aggressively vaccinate and boost its vulnerable with the best protection available, build up intensive-care capacity, and motivate the populace to protect itself by articulating a clear intention to eventually move toward living with the virus, many more situations like Shanghai and Hong Kong might become inevitable.

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