More Nations Bend to the Economic Cost of Covid Zero-Tolerance

zero COVID or learn to live with it? Most of Asia was firmly on one side of that debate through the first eighteen months of the pandemic, but as variants have spread and other parts of the world have taken a different course of COVID endemic, many are now changing tack and like it or not, Bloomberg has ended up as a test case for one country's revised attitude to the virus this week, holding the New Economy Forum in Singapore. The World Economic Forum tried to have a meeting here

in August was forced to cancel. The same happened to Singapore's famous Formula one race in the autumn, But the New Economy Forum has not been canceled yet. It's happening this week. We're here and several hundred delegates are on their way to join. So can Singapore be an example of a new normal for the region, and economically, what are the stakes for all economies in learning to live

with COVID. I'm going to talk to Bloomberg Chief economist Tom Marlig about that in a few minutes, but first, the editorial director of Bloomberg New Economy, Andrew Brown, Andy, you're on the ground. What's it been like in reality organizing an in person event in a country that's also

still nervous about COVID. Well, Singapore is a laboratory of sorts for how countries can move from zero COVID chasing down every last infection too COVID endemic where essentially you take the view that it's impossible to stop COVID uh and the you know, the the the the new variants have become so easily transmissible that your only option is to learn to live with it. And Singapore took that decision. Of course, it wasn't it wasn't entirely a leap in

the dark. They decided that once they had got to a certain vaccination level that they would reopen and a lot of countries in this part of the world in East Asia or Asia Pacific looking now at Singapore's experience and learning lessons from it, including Austria, Alien New Zealand, but most importantly China, which is by far the largest zero COVID country, and they are still adamantly sticking to their course. Well we should. We'll definitely talking about China

in a minute, but just on on Singapore. I mean, how we have all this, We have this in person event, but in practical terms, I'm noticing, Um, you know, I would normally just go into the Bloomberg office and see members of my team when I'm there. Now we're doing that, but it's quite carefully arranged because many people are still being told to work from home. There's still quite a lot of restrictions in terms of how many people you can have meals with. So so it's still early days,

isn't it. It is, um, But you know, we've the Singapore authorities have been remarkably flexible when it comes to the Bloomberg New Economy Forum. They want to, in a sense, use us as part of this experiment to demonstrate first of all to the world that Singapore is back open for business, but I think also to a domestic population that it is possible to open and open safely. So we all came in in this vaccinated traveler lane. They've opened these lanes to a number of countries including the

United States, Australia, UK. That everybody who is attending and there's several hundred of us, several hundred delegates at the New Economy Forum this year. Um, we're all coming in under a special dispensation. First of all, everybody, of course must be vaccinated and prove their vaccination, and then you have to take a PCR test. Within forty eight hours of departure. You arrive at Changi Airport, you've got another

pc HART test. You go to your hotel, you quarantine for a few hours until the result of that PCR test comes in and then you um, then you're free to go. You're free to too, and it's not a bubble. Um, we're allowed to move around the city. We liked. Singaporeans have to download a mobile app called Trace together into our iPhones, are into our smartphones, which alerts US and the Singapore authorities to any sort of near misses that we have with people who subsequently test positive for for

for COVID. So it's a controlled experiment, and and we're a part of it. The previous colleague of mine who had gone to a very even more controlled event I think a year a year or so ago in Singapore, and that the limits of that quarantine was so strict that you've got a hotel room key that only allowed one use and after that, if you if you had snuck out of your hotel room when you weren't supposed to,

you would not be able to get back in. To have visions of sort of you know, in the middle of the night, people trying to have a run or something and then ending up outside in the corridor. Yeah, Well, the Singapore public has high expectations on the performance of their government, and indeed the government prides itself on its technocratic efficiency and ability. So it wasn't an easy decision of their's to step back and essentially sort of let go,

But you know, they had they had no choice. The salient point about Singapore is that it is one of the world's most open economies, most globalized economy in terms of the movement of goods and services and people knowledge, and remaining in lockdown just wasn't an option that the economy was really devastated last year. UM. The air transport sector of the economy UM supports jobs and industries that

account for about twelve percent of Singapore's GDP. And you know the three through and at the center of this is Channi Airport. Last year, through put in Changi was about three to four percent of what it normally is. And Singapore went into its steepest deepest recession since independence in nineteen sixty five. UM, so they had to reopen the you know what happened was as soon as they reopened, they went from you know, caseload of a few dozen

a day very quickly to thousands. They almost immediately spiked at about five thousand cases a day. And now we're down to about three thousand a day. And and and we had an accompanying sort of surge in death or surge is probably the wrong word because it's still very very modest. UM. You know, don't forget that the population of Singapore is about five and a half million people,

about the same size as Sydney or Melbourne, Barcelona. UM. Nevertheless, UM, you know, we're seeing last year remarkably the total number of deaths in Singapore from COVID Uh, with just a few dozen, and now we're getting ten or so a day. Um. And I think that was the first lesson that that countries like Singapore are taking from from the like Australia rather taking from the Singapore experience, which is that you really do need even though your population is highly vaccinated,

you can expect a surgeon infections and deaths. And it is quite politically tricky for governments that have staked so much of their credibility on chasing down every last COVID infection zero COVID. You mentioned China, it famously is on another attack. How long do you think they can hold out with the zero COVID approach and at what cost? Well, it's an interesting question. I mean, they've decreed that they're going to be closed through the Olympics, the Winter Olympics,

which will take place in in February. Um, You've got this really important Communist Party congress towards the end of the year. I think it's highly unlikely that they're going to open up and risk a surgeon infections before them, particularly since they frequently compare the way that they have had had so effectively handled the aftermath of of of you know, the up for the outbreak in Wuhan UM to the art failure and of the United States to contain the virus UM. So they staked a lot of

legitimacy UM on zero COVID. So I don't see them reopening next year. UM. You know, it may may actually be that they're going to keep in place restrictions UH for many years. One of the lessons I think that they learn, or that one can learn from the Singapore experiences that the longer you leave it, the worst it becomes. And one reason that they had this explosion of infections despite having widespread vaccination UM is because there was no

natural immunity in the population. I mean simply last year, nobody got infected UM. And that even even a small even though of all those cases are mild or asymptomatic, a small, tiny number of cases UM that do become serious can very quickly overwhelm the healthcare system. Don't get Singapore's healthcare system and hospital system is among the best in the world, and China's healthcare system, particularly in rural areas, is rudimentary. And so it's going to become increasingly difficult

for China to to reopen. Bearing in mind all also that they're not using mRNA vaccines in China. They're still using the old fashioned vaccines made by you know, injecting people with the inactive or all very diluted forms of the virus, and these vaccines aren't as good. We're going to talk about the economic cost of that in a second with with Tom. But I'm just as you know, you lived in China for many years, You're a distinguished

observer and analyst of China. I'm just wondering what you think about the the kind of intellectual and cultural cost of China remaining excluded. I've been struck recently in sessions where I'm talking to China experts academics sitting in the US who are just increasingly concerned that about the lack of information flow and how our understanding of what's happening in China will diminish over time. This just this basic inability for people to go there UM and exchange ideas

and thoughts. Are you what do you think about that? I think it is concerning when you look at these pictures of these barrack like buildings that they're constructing in Guangzhou and other coastal cities. UM capable of housing five thousand travelers, and it's pretty clear that they're hunkered down for the long term. And I think the lack of interaction between China and the world risks UM China looking inward, turning inward, UM she Jimping. The country's leader, of course,

hasn't traveled since the beginning of the pandemic. Um he didn't show up. But the G twenty he didn't show up a cop And as you say, all of the normal interactions between China and the world, whether that's academics, whether that's journalists, um, whether that's government officials, have all dried up. And I think under those circumstances, Um, it's much easier um for China to end up with a caricature view on what's happening in the world. It's much

easier for the world to demonize China. I just think given all the tensions that are now bubbling in the relationship tension, geopolitical tensions, tensions over Taiwan, human rights, and shin Ja, this is a time when China needs to be engaging much more vigorously with the rest of the world. And in the absence I think of of these context I think danger as bad things can happen. I saw we had a story the other day that the President, Joe Biden, is not happy with the level of intelligence

that he's getting from from China. So it's not doesn't bode well. Andrew Brown, thank you very much. Great to be with you. Definitely, thank you. M So. As previously advertised, I wanted to have a quick chat with Chief Economist Tom Orlig about the state of the Chinese economy because it's obviously a big part of these conversations around the COVID zero strategy, but we're also seeing China slowdown quite radically, including in some of the latest data. So so, Tom,

how severe is this slowdown? It's pretty bad, Stephanie. You've got three factors hitting at the same time. First, you've got COVID zero. Just a few cases are sufficient for China to lockdown entire towns in entire provinces, and that hits growth. Second, you've got energy shortages, not unique to China, but certainly hitting hard given the energy intensity of China's industrial sector. And lastly, perhaps most troubling for the China

bears is what's going on in the real estate sector. Ever, Grand emblematic of a sector which is over built over leaver Ridge and now running into trouble paying its bills. Put all those pieces together, the economy came screeching to a halt in the third quarter and the fourth quarter hasn't started much better. You mentioned real estate. The really striking thing was they said earlier in the year, we're not going to use real estate to stimulate the economy

like we have in the past. By all accounts, the leadership thinks the real estate sector has become too large or too too important to growth. So how bad would it have to get for them to blink on that. So China's real estate sector is really big. There was a recent estimate by Ken Rogoff, the kind of the giant of thinking about debt risks in the global economy, and he thinks that real estate is more than of China's GDP. So it's really big, and it's really over leaverage.

There's a lot of debt there, and it's really overbuilt. I'm sure many stephonomics listeners have heard about the ghost towns of empty property which we see around China, and China's government has decided, well, this is not sustainable. So they're taking ever Grand, one of the biggest developers in the country, to the brink of bankruptcy, and they're doing this to teach a lesson to the sector, to teach the sector that they can't continue with this unsustainable debt

fueled over building approach. All of that is good news. It should put the real estate sector on a more sustainable footing going forwards. It should start driving PITTAL towards more productive uses like industrial robotics or services um. But in the short term, finding a replacement for that of GDP, which currently comes from property that's tough to do. And what it means is that China almost inevitably faces a

drag from real estate in the year ahead. I mean, how scared should we be by these latest numbers When you talk about the economy screeching to a halt? I mean, are you tearing up your forecast for next year? So China has really slowed a lot in the last few months. If you look at the third quarter, the official data is telling us that growth was just no point two on a sequential basis. If you annualize that, it's just a nor point eight percent growth rate. China was growing

slower than the United States. China was growing much slower than the five six seven percent pace we were accustomed to before the COVID crisis. Now China has policy space to stimulate. They could do more on the fiscal side with more spending. They could do more on the monetary side, cutting interest rates or allowing banks to lend a bit more. The question is where is their tolerance whereas their pain threshold?

Right now, pre COVID it was pretty clear they're not going to let growth drop below six The big question is whereas the new line. It's probably not six percent, but is it five? Is it four percent? Could we be looking at a Chinese economy growing at three These are big consequential questions for China, they're big consequential questions for the world, and right now we just don't know

the answer. It's one of the things I know that we're going to be discussing over the next few days with Chinese thinkers and Chinese officials at the New Economy Forum. Thanks very much, Tomic, it's great to be here. That's it for this special edition of Stephanomics, which was produced by Magnets Hendrickson, with special thanks to Andrew Brown and Tom Pollock. Mike Sasso is the executive producer of Stephanomics, and the head of Bloomberg Podcast is Francesco Levy.