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Do Asian “zero Covid” countries risk a healthy economic future?

“Zero Covid” economies in Asia were reaping the health and economic benefits of strict lockdowns and boarder closure approach so far. However, economists warn that as economies globally reopen, this approach might not prove sustainable.

In Asia Pacific, Singapore, Taiwan, China, Australia, Hong Kong, Macau, New Zealand, and Vietnam are among the economies that focus on completely eradicating the Covid-19 virus – through the strategy of imposing stringent lockdowns, rigorous contact tracing, and mass testing, travel bans, and extensive quarantine periods for long-term arrivals.

“ZeroCovid economies have outperformed their counterparts during the pandemic, contributing to a much shallower recession in Asia in 2020 than in other regions,” a recent report by The Economist Intelligence Unit (EIU) states. Covid‑19 cases and deaths among this set of countries have been much lower than global peers.

However, zero-Covid economies could now undercut rather than support economic activity, if they fail to liberalise. They could block opportunities from business travel and operations, international tourists, student flows, and foreign talent recruitment, according to EIU.

The cost of the zero-Covid strategy

As one example, the report gives Hong Kong and Singapore. Both countries planned to open a travel bubble in 2020, but had to postpone already twice. Now, recent talks have been put on hold again due to increasing infections in Singapore.

“Hong Kong and Singapore have a significant number of foreign workers: about 30% of the Singaporean population neither has citizenship nor permanent residency status. The country risks permanently losing such labor if arrangements for easier cross-border travel are not put in place,” the EIU stated. 

Australia and New Zealand risk missing out on a revival in international tourist and student flows. Both sectors are important in these countries.

The only countries that could survive a zero-Covid path according to the EIU report are China and Taiwan, due to their minimal dependence on cross-border movement of capital and talent. 

Unpredictable risk Delta variant

The Delta variant, however, is challenging the strategy of zero-Covid economies. In Vietnam, the Ministry of Health reported a total of 123,640 coronavirus cases as of July 29, 2021, due to rising numbers of delta variant infections. The country is lagging behind in vaccinations with less than 5% of its 96 million population vaccinated.

Infectious disease specialist Barney Flower of the Oxford University (Clinical Research Unit) in Ho Chi Minh City said that shrinking the cases to zero is impossible once the Delta variant had spread and non-medical interventions could no longer tame the outbreaks. 

A year after Australia announced its goal of zero community transmissions, it is posting a record daily rise in Covid-19 cases and has already asked the military to help enforce stricter lockdowns. Economists believe that prolonged lockdowns signal a contraction in September, brewing a risk of another Australian recession 

What lies ahead for zero-Covid economies?

The emergence of new Covid19 variants would likely convince zeroCovid countries to keep their current strategy. However, EIU analysts expect the first half of 2022 to witness a phased relaxation. Meanwhile, widespread vaccination may be achieved in each of the zeroCovid economies by mid2022. 

“We do not expect any zeroCovid economy to open border policies significantly in the remainder of 2021, although incremental policy adjustments like those in Hong Kong are possible,” EIU said. 

The anaylsts expect China to be the most cautious in terms of global reopening. The country’s officials claim that the earliest date for border normalization would take place in the middle of 2022.