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German brewers have long been wary of increasing prices.
When King Ludwig 1 raised the ale tax by 8 per cent in 1844, riots broke out between labourers and the army in Munich that lasted for three days. But Johannes Faust and his 1,500 counterparts scattered across the country may soon have little choice.
Faust has brewed beer on the banks of the Main river in northern Bavaria, nestled between the half-timbered houses in the historic centre of the small town of Miltenberg, for 30 years. The chief executive has never seen his costs surge on the scale they are today.
The malt Faust’s family-owned brewery has bought from local German producers since it started making beer in 1654 will soon double in price. Russia’s invasion of Ukraine has hit supplies of the grain from the two countries, which together produce over a third of the global barley market.
The brewery is also having to pay at least a third more for its glass bottles, along with over 50 per cent higher prices for plastic cases, and three-quarters more for its metal bottle caps. Energy, transport and staff costs are also going up. “I’ve never seen inflation like this,” said Faust.
This brewery, like many in the country, had been able to shield customers from higher costs owing to long-term supply contracts. The doubling of the malt price that he recently agreed is for next year’s supply, while its two-year energy contract means its electricity prices will not go up until 2024.
But, unless costs tumble fast in the coming months, higher prices for the country’s beer drinkers look set to follow. Holger Eichele, head of the German brewers’ association, said: “For many companies this is becoming an existential threat.”
Across the eurozone, manufacturers are under pressure from rising costs — producer prices rose at an all-time high of 37.2 per cent in the year to April.
But the sudden surge in costs is just the latest shock to hit Germany’s breweries. Only a few countries drank more ale than the 83.8 litres each German consumed on average last year. Yet, as more health-conscious consumers choose other drinks, the figure has fallen steadily since the 1970s, when they drank 150 litres per person.
If inflation means Germans have to pay much more for their steins of beer, it could squeeze demand for the national tipple even more.
Surging costs have been the last straw for some, such as the 558-year-old Frankenwälder brewery in north-east Bavaria, which filed for insolvency this year after many local beer festivals shut for two years during the pandemic. “I fear some breweries in our size range will have problems with higher costs because they don’t have market power,” said Faust.
For now, the average German beer drinker will have barely noticed the increase in prices, which accelerated only slightly to 2.9 per cent in the year to April, according to Germany’s statistical agency. That is well below broader consumer price inflation of 8.7 per cent in the year to May. This moderation, like a pledge of sobriety at Munich’s Oktoberfest, looks set to be overtaken by circumstance.
This month, Faust raised its price by 10 cents per litre of beer, equal to a higher than usual 6.5 per cent increase, taking the price for a 20-bottle crate of its best-selling Pils to €16.49. “But that was decided last October, long before Ukraine, and it does not even come close to offsetting our higher costs,” said Faust.
Rhineland-Palatinate’s Bitburger said its own “moderate” price increase, decided last year, would also do little to cover its “exploding energy and raw material prices”.
The Berlin Brandenburg brewery association, a regional trade group, said prices for beer drinkers could rise up to 30 per cent this year. Radeberger, the biggest German brewer based in Frankfurt, said it also worried about “the increasing scarcity of raw materials and the resulting further price increases”.
Economists agree that the capacity for factories to handle high input costs without raising prices for consumers would not last. “Just the delays built in to pricing policy mean there is still a lot of inflationary pressure in the pipeline for the next few months,” said Carsten Brzeski, the Frankfurt-based head of macro research at ING.
Oliver Rakau, chief German economist at Oxford Economics, said what started as mostly an oil and gas price shock was broadening to drive inflation in many other products and services. “There’s no denying that higher energy and commodity prices will feed through into other products, like food and drink prices, and that could lead to higher restaurant prices, which pushes up services inflation,” he said.
Improving market conditions may also help German brewers to pass on more of their high costs to consumers, who at the moment pay much lower prices than their counterparts in places like the UK.
Beer sales have rebounded in Germany recently — rising 5.1 per cent in the first four months of this year compared to a year ago, according to Germany’s statistical agency — and the reopening of many beer festivals including Oktoberfest after two years of Covid closures, is likely to boost demand. Beer prices at this year’s Oktoberfest will be on average 15 per cent higher than the last one three years ago, at €13.37 per foaming litre.
Still, those who know their history are keen to avoid alienating the country’s drinkers. Asked whether he will raise prices even higher for his customers next year, Faust gave an anguished look. “We have to be very careful,” he said. “We have to think about it, but maybe we can avoid it if things change in Ukraine.”
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Hello and welcome to Trade Secrets. If you’ve not noticed it, there’s a G7 heads of government summit going on in the Bavarian mountains today. Among other things, the leaders formally launched a supposed $600bn plan for infrastructure and investment to challenge China’s Belt and Road Initiative, which sounds like yet another iteration of the stuff we’ve been hearing for several years. Today’s main piece looks at the latest of an array of shocks to the world trading system — a high-inflationary environment and the rising risk of recessions — and whether this will be the one that finally sends globalisation into long-term retreat. Regular readers won’t be astounded to hear that I remain quite optimistic it won’t. If you think I’m wrong about that or anything else and want to let me know about it, I’m on email@example.com. Charted waters looks at the food crisis fuelled by conflict in Ukraine.
It’s quite honestly like a gang of malicious economists (that is, economists) have taken a fairly well-functioning global goods trading system and repeatedly bashed it hard in quick succession from a variety of angles just to see whether it falls over.
In 2020 we got the negative shock to goods production and demand from the first wave of the Covid-19 pandemic. Then through most of 2021 the demand bit reversed and there was a massive resurgence of consumer durables sales and hence trade volumes, putting pressure on sclerotic ports. Demand for consumer goods also created upstream supply problems such as shortages of semiconductors.
In late 2021 the Omicron wave brought a fresh negative supply shock to production, especially in China. The Russian invasion in Ukraine has since created a whole new container-load of effects: an initial negative supply shock to shipping from blocking Russian ports and ships, a second upward push to freight costs from higher fuel prices and a rupturing of global food markets from the disruption of grain shipments in the Black Sea.
Now, with the global rise in energy prices and inflation comes a potentially hefty negative macro shock from falling real incomes and higher interest rates, and we’re all worrying about the bullwhip effect amplifying consumer demand disruptions up the supply chain. Since goods trade is historically more volatile than gross domestic product, recessions in the big economies could cause a serious contraction in cross-border commerce.
Ralf Belusa, managing director for digital business and transformation at the German-based global container shipping group Hapag-Lloyd, summed it up at a recent FT event: “Our reality today is based on increased, accelerating and interconnected volatility, uncertainty, complexity and ambiguity.” A cheery thought.
The various effects of all of this so far has been as follows. Volumes of goods trade have held up pretty well: they’ve pulled back a bit in the past few months, but there’s little sign of a collapse yet. The surge in consumer demand for goods relative to services that followed the first wave of Covid is still largely in place. Flexport, the freight forwarding and supply chain company, says that its measure of preference for goods is tracking back only slowly to 2020 values.
Freight rates have similarly been drifting down, though from historically very elevated levels. Port congestion, which last year was particularly a US west coast phenomenon — Ryan Peterson, chief executive of Flexport, repeatedly compared the underinvested Long Beach/Los Angeles unfavourably with Rotterdam — is also affecting Europe. The first of what could be a wave of dock strikes in Hamburg and elsewhere isn’t helping.
The threat: a new negative global demand shock on top of existing supply disruptions causing a big crunch in trade later in the year or in 2023 and inflicting longer-term damage. The first is a distinct possibility, noted by CEOs as well as macroeconomists. Although the combination of high volumes and freight rates means shipping companies (including bulk carriers bringing fuel and food over longer distances to replace the Black Sea supply) have been coining it in, companies such as Maersk are warning about weakening demand in the second half of the year.
On the other hand, a cyclical correction, even an abrupt one, doesn’t necessarily mean a trend reversal. What with energy shocks and high inflation there are lots of references to the 1970s kicking about. But though there were cyclical movements back then, they didn’t reverse the long-term postwar increase in global trade, despite the collapse of the postwar Bretton Woods trading system in 1971.
And here’s the thing: despite shipping companies worrying about the short term, they are putting big bets on the future. Maersk is warning about the next few quarters, but it is bullish for the longer term. The ratio of new container ships ordered to the existing global fleet is heading to more than 30 per cent for the first time in almost a decade. The companies may be way too optimistic, obviously — there’s a long history of overcorrections in the shipping industry and there was serious overcapacity in 2020 before the pandemic hit. And of course shipping owners are not publicly going to predict a collapse in demand for their services. But still, it’s striking that such huge bets are being taken on global goods trade powering ahead in years to come.
Esben Poulsson, chair of the International Chamber of Shipping, told a recent FT event: “Those owners are investing in new ships in the belief that free trade is here to stay, despite talk of reshoring. I don’t see evidence of [the end of globalisation]. I see a lot of political posturing about it.” Until I’m shown some pretty chunky evidence otherwise, that remains my view too.
As well as this newsletter, I write a Trade Secrets column for FT.com every Wednesday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters.
The unfolding food crisis is a key issue of concern for the G7 heads of state meeting today in Germany. But in other parts of the world — notably Africa — it is a real and present catastrophe, as my colleagues Andres Schipani and Emiko Terazono explain. Today’s chart shows how many African nations are reliant on imports of grain from Russia and Ukraine — Eritrea topping the list.
This breakdown in trade caused by conflict in Europe is not the only reason the struggle to eat has become acute in several African nations. The worst drought in four decades across northern Kenya, Somalia and large parts of Ethiopia will mean that up to 20mn people could go hungry in that region this year, according to the UN’s Food & Agriculture Organization. Tragically, further problems are likely to occur as food shortages fuel conflict within the region. (Jonathan Moules)
The news service Borderlex explains that the Energy Charter Treaty, accused of exposing governments to expensive litigation if they shift to renewable energy, has been reformed, though it remains to be seen whether enough has been done to placate critics in the EU in particular.
The Essential Goods Monitoring Initiative reports that governments have (sensibly) been cutting import restrictions on food and fertiliser in response to soaring prices.
Three analysts from the Brookings Institution look at the need for the US to attract and admit skilled immigrants if its attempt to expand its domestic semiconductor industry is going to work.
Sam Lowe’s Most-Favoured Nation newsletter (£ but free trial) looks at the UK government getting itself into a tangle by overriding its own trade defence authorities to keep import safeguards on Chinese steel.
An online exhibition of photographs of trade diplomats at the recent WTO ministerial negotiations shows the human stories behind the bureaucracy.
Trade Secrets is edited by Jonathan Moules
June 2022 marks the 250th anniversary of the outbreak of the 1772-3 credit crisis. Although not widely known today, this was arguably the first “modern” global financial crisis in terms of the role that private-sector credit and financial products played in it, in the paths of financial contagion that propagated the initial shock, and in the way authorities intervened to stabilize markets. In this post, we describe these developments and note the parallels with modern financial crises.
The 1772-3 crisis was global in scope, with failures spread across Great Britain and the Netherlands, the other main European financial centers, and as far afield as St. Petersburg and the West Indian and North American colonies (as covered in a previous Liberty Street Economics post). Over the course of a year, it disrupted credit markets, adversely affecting both banks and non-bank borrowers.
There were two waves of failures. Sparked by the flight of the Scottish banker and speculator Alexander Fordyce, panic broke out on June 9, 1772, in London, with the experimental Ayr Bank in Scotland an important casualty soon after. Another round of failures hit Amsterdam over the winter of 1772-3; most notable among these was the ancient bank of Clifford, held by contemporaries to be the second most important bank in Europe.
Since the role of fast-changing private credit markets was crucial in precipitating and propagating the crisis, we start with an overview of the private credit instruments prevailing at the time.
The bill of exchange was the primary credit tool fueling trade in this era: a promise to pay money (usually foreign currency) in a defined place and at a certain time. It was effectively an IOU that a merchant or bank could “accept” or ask a third party with stronger credit to accept (underwrite) on its behalf. Depending on the distance that the bill or related shipments might need to travel, the bill would typically have a maturity of up to a year, though three-six months was more common.
Although originally created to support short-term trade, a bill could (and did) become endorsed to third parties as payment of debts before its maturity, in effect serving as a paper money surrogate. All parties (including endorsers) undersigning a bill were jointly and serially liable for the debt, thus diversifying credit risk in normal times. During times of distress, however, the bill’s credit liability characteristics served as an avenue of financial contagion since all undersigned parties were at equal risk to be called upon for the full debt.
The bill of exchange was also increasingly used in long-term finance by “rolling” an expiring bill with a matching bill on the same date, in a process known as swiveling. This helped merchants to secure working capital, but also allowed speculators to finance long-dated, higher-risk asset purchases, such as commodities or equities. The “rollover” risk inherent in this process is similar to that underlying the global financial crisis of 2007-9.
Innovations in mortgage lending in the mid-eighteenth century stand out for their contributions to financial instability in the run-up to 1772 and the failures of that year. The mortgages themselves became more speculative as they included riskier loans, such as those collaterized by West Indian plantations managed on the behalf of absentee owners. As the loans were pooled and sold as mortgage-backed securities (MBS), they distributed the underlying risks to investors broadly.
MBS (negotiaties in Dutch) were issued on a massive scale in the Netherlands in the 1760s. They were sold to well-to-do retail investors, often in increments of 1,000 guilders, a sum about six to eight times the annual income of a typical citizen. The plantation sector in the Caribbean provided the fuel for the boom, with mortgages on Dutch and Danish plantations in the West Indies used as collateral for over 40 million guilders in new loans (or about 22 percent of the GDP of Holland) in the years 1766-72 alone. By the end of the decade, the volume of new loans exceeded the productive investment opportunities.
Speculation in the stock markets, then as today, relied to a significant extent on margin lending. Notaries and other intermediaries had long used the pledge of securities as the basis for short-term loans. In the Amsterdam market, these loans were typically for six months, with an option for renewal should both parties consent. A haircut on the pledged securities helped to ensure that in case of a borrower default, there would be more than enough value in the collateral to cover losses.
This investing was often conducted cross-border, with the Dutch acting as major financiers of speculation in British shares and debt securities. Increasingly, sophisticated investors lent via arrangements similar to those used today by prime brokers when they lend to hedge funds. These lenders ensured that they could re-margin their loans in response to market movements and thus were able to avoid losses, even as a credit crisis gripped the market.
Not all lenders, however, showed this level of sophistication. Some lent against illiquid securities, such as negotiaties. Others failed to secure legal control of collateral, and disputes about who was entitled to what share of recovered creditor funds continued for many years afterward.
To quell the panic and to ensure that the commercial economy did not collapse, authorities employed tools familiar to modern readers: collateralized lending facilities and lender-of-last-resort powers.
In Amsterdam, civic authorities set up a collateralized lending facility open to anyone with qualifying collateral to pledge. Loans backed by various warehoused commodities (Beleningskamer loans), and provided at standardized advance rates, replaced some of the lending capacity that had been lost. While these loans were relatively modest in size, the very existence of the facility stopped the downward spiral of forced commodity liquidations and helped bring private lenders back into the market. These loans, combined with the arrival of precious metal shipments called in from other European financial centers, ensured that markets had resumed normal functions by mid-1773, although investors absorbed large losses.
The Bank of England provided last-resort lending starting in 1772 (although the term itself was not coined until three decades after the crisis). The Bank provided liquidity by increasing the volume of its discounts. Because of usury laws, the Bank was obliged to credit ration these loans instead of raising its discount rate as Bagehot would later suggest. But the Bank did not hesitate in deploying additional containment resources, such as supporting the biggest bill acceptors in London with targeted short-term loans, through which they, in turn, could support their clients.
Intense as the twin panics of 1772-73 were, authorities were able to stabilize markets and restore confidence in the economy. These events resulted in a larger role for the institutional infrastructure of finance, focused around central banks and other state institutions, and created a set of financial stabilization techniques that are still in use today. The availability of these new tools was fortuitous, since Europe was entering the period of the most profound changes in economic growth and capital investment in human history.
Stein Berre is a director in the Federal Reserve Bank of New York’s Supervision Group.
Paul Kosmetatos is a lecturer in International Economic History at the University of Edinburgh.
Asani Sarkar is a financial research advisor in Non-Bank Financial Institution Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).
For decades, China’s expanding middle class had but one option to get ahead: neijuan, or joining the rat race of relentless competition.
Then, a surprising strain of resistance sprouted among the young last year: tangping, lying flat and doing only the minimum to make ends meet.
Now, after a return to gruelling lockdowns under President Xi Jinping’s zero-Covid policy, a third trend has emerged: runxue, the study of how to get out of China for good.
In late March, as more than 300mn people found themselves under fresh restrictions, searches on Tencent’s WeChat platform for “how to move to Canada” surged almost 3,000 per cent, a study by US think-tank the Council on Foreign Relations (CFR) found. In early April, WeChat searches for immigration jumped more than 440 per cent. Relocation consultants in China and abroad say they were also hit by a torrent of phone calls and emails.
The runxue phenomenon highlights that ordinary Chinese are deeply frustrated. Their day-to-day freedoms hinge on the results of mandatory Covid-19 tests, often taken every 48 or 72 hours. Their minds are occupied by the immediate risks of strict quarantine in state-run facilities, separated from their families, as well as deeper anxieties over job security and falling household incomes as the economy teeters on the edge of recession.
Earlier hopes that the severe lockdown imposed on Shanghai in March would be a one-off are fast fading, despite the glaring economic and social costs. Instead, Xi and his leadership have explicitly reaffirmed their commitment to the controversial zero-Covid playbook of relentless snap lockdowns, fastidious mass testing and closed borders.
Yet the longer zero-Covid persists, experts say, the more the leadership risks a longer-term fraying of the Chinese Communist party’s “social contract” with Chinese society, especially the fast-growing urban middle class which the party has so far managed to keep onside.
The legitimacy of the CCP and its leadership has long been underpinned by the extraordinary rise of China’s economy since the 1980s, which pulled the country out of poverty and propelled hundreds of millions of Chinese people into the relative prosperity of the middle-class.
But the return to sweeping lockdowns this year has demonstrated to many people that no amount of prosperity trumps political power in China, says Kathy Huang, a researcher with the CFR who has been tracking the spread of runxue.
Shanghai is gradually reopening but the shock of the returns to lockdowns has sparked a “shift” in the attitudes of Chinese people, Huang says.
Previously, many blamed the local officials for the haphazard implementation of the zero-Covid strictures. Now most are sympathetic toward those caught up enforcing the bureaucracy, “a recognition of how powerless everyone is under central policies,” she says.
Not since the one-child policy has a national strategy touched nearly every individual in China. Trapped in a web of unpredictable and chaotic lockdown rules, many Chinese are now dreaming of a permanent escape.
“For many elites, emigration had been a viable and popular option long before the lockdowns,” Huang says. “But the sudden spike in interest indicated by the search engines and the immigration consultancies tells us that a much bigger population, most likely those in the middle class, is starting to consider it after the lockdown.
They are looking for a long-term, not temporary solution to their unsatisfactory life in China.”
The economic reality and strict border controls means that the vast majority of the Chinese middle class have little hope of turning runxue from a study into practice.
Many economists expect China’s gross domestic product to contract this quarter — the second time it has entered recessionary territory in 30 years. Full-year growth forecasts have so far been revised down to about 4 per cent, half the 8.1 per cent growth recorded last year, and below Beijing’s aim for 5.5 per cent, which was already a three-decade low.
A resulting squeeze in living standards is rippling from low-paid labourers through to the professional classes and into boardrooms.
Eko, an export industry professional with a multinational company in Changsha, central China, says “most of my friends are experiencing some decline in their incomes and increased financial pressures, including government employees”. He wants Beijing to pivot to a “full opening” to rekindle the economy.
Andy Zhu, a 30-year-old computer programmer based in Shenzhen, China’s southern tech hub that was briefly locked down in March, says while there has been “a massive impact for all industries” he has been personally forced to rethink how he manages his own finances. “The pandemic has raised my awareness of recessions . . . we need to save more,” he says.
One 24-year-old accountant in the eastern city of Nanjing, who asked not to be named, expects her income to be halved this year as the downturn bites. Her parent’s plan to buy a new car was recently put on ice.
Nomura analysts have cautioned that “some fundamentals” might be worse than China’s official data suggested. The Japanese bank’s analysts point to China’s road freight index, a closely watched gauge of economic activity, down almost 20 per cent year on year, and sales volume of new homes slumping nearly a third.
They also note contractions in output across key commodities and products including power, cement, crude steel, cars and smartphones, adding that “although the worst appears to be behind us for this Omicron wave, there is no guarantee that a new wave will not hit in coming months”.
As the lockdowns drag on economic growth, Beijing is pledging economic support including a reversion to large-scale infrastructure projects and tax breaks. But economists, also worried about rising inflation, are not optimistic that the scale and delivery of the planned stimulus will be enough to prime a “V-shape” recovery from the world’s biggest consumer market and factory floor.
Job statistics will also be worrying Xi and his economic planners in Beijing. Unemployment among workers aged between 18 and 24 has hit a record high of 18.4 per cent. The rise in youth joblessness already has put China on par with Slovakia and Estonia. The problem will soon worsen with more than 10mn university students graduating in the coming weeks.
The zero-Covid policy is also taking a toll on people’s mental health. Although official data are in short supply, academic research into earlier stages of the pandemic are troubling. A survey of almost 40,000 students in 2020 showed the prevalence of depression, anxiety symptoms and suicide risk at double digit rates, a group of Chinese researchers wrote in a paper published by academic journal Current Psychology.
Logan Wright, who leads China markets research at Rhodium, the think-tank, notes that many people are now comparing this crisis to some of the darkest days under Communist party rule.
“China’s own citizens . . . are discussing the current crisis by likening it not to Sars or another epidemic, but to the Communist party’s political campaigns from China’s history — particularly the history of the 1960s,” Wright wrote in a recent policy analysis.
“There are frequent discussions of the overreactions of local officials to a few cases and the overreporting of economic data during the current slowdown using the context of the Great Leap Forward, and others comparing the ‘Big Whites’ (newly recruited medical volunteers assisting with the lockdowns) to the Red Guards of the cultural revolution,” he added.
For Chinese at the lower end of the economic ladder, the leader’s refusal to budge from the policy of completely eliminating coronavirus is starting to erode years of progress.
One year ago, Xi claimed personal responsibility for eradicating poverty in China, a proud yet unprovable boast at a time of global economic pain with much of the world in the throes of the pandemic.
The issue is highly politically sensitive. Xi has personalised the state’s long-running anti-poverty campaign. Last year he also made equality a hallmark domestic policy under the “common prosperity” banner, which has included cracking down on the power of big business, cultural vice and excess among China’s ultrawealthy.
Research shows that Chinese living in, or on the edge of, abject poverty were among those hardest hit when the initial coronavirus outbreak emerged from Wuhan in early 2020. Academics from Chongqing University and Sun Yat-sen University said in a report analysing the initial nationwide lockdown in early 2020 that homeless people were hit by a “substantial decline in incomes” and “humanitarian aid from local governments of China decreased, whereas inhumane efforts to drive the homeless away intensified”.
Samantha Vortherms, a China expert at the University of California, Irvine, notes that in factories across the world’s second-biggest economy local staff are considered the “core employee base”. China’s 380mn itinerant migrant workers are “periphery”, she says, which means they are the first to be laid off when companies are hit by downturns, a problem exacerbated by unequal access to social security provisions.
“Migrant workers are much less likely to have formal labour contracts that allow them to pay into social insurance schemes that protect them if unemployed,” she says.
Gao Qin, an expert on China’s social welfare at Columbia University, says that the fallout from the latest lockdowns in densely populated urban areas will also hit rural households as more and more migrant workers are unable to keep up regular remittances.
Migrant worker livelihoods depend on mobility — moving between factories and towns looking for work — meaning that during the pandemic they risk not only losing work, but also being targeted by officials for spreading coronavirus, Gao says. “The pandemic has changed almost everything,” she says. “I think we all understand poverty [in China] . . . is an issue.”
The state’s promises of support have provided little solace nor cause for celebration among the workers themselves. “I sometimes listen to the news on the radio. It is all bullshit,” said a labourer surnamed Du who spoke to the Financial Times at a market in Guanzhuang, in Beijing’s eastern outskirts. Out of work and unable to send money to his children, Du planned to return to his farming plot in the country.
Those who can afford to leave the country completely are finding it more difficult to do so. One Chinese entrepreneur now in Washington DC, who asked not to be named for safety reasons, considers himself among those “lucky” to escape before Beijing cracked down on people fleeing the country.
“I flew from Guangzhou to JFK in February . . . Even then it took me four hours to get through all the checks. At the first checkpoint I was interviewed by public security bureau policemen asking me ‘reason for travel’ and how much I was carrying. They were checking people’s baggage.”
Others weren’t so lucky, he adds. “A friend of mine wanted to go to New York to drop her child off at college, but the passport office refused to issue her a passport. They said dropping off her child at college wasn’t a valid reason to leave China.”
The issuance of Chinese passports — both new and renewals — was already down 95 per cent in the first quarter compared to before the pandemic, according to official data.
Then in May, the National Immigration Administration doubled down, announcing it would “strictly limit” unnecessary travel amid fears of infections caused by international travellers. But it denied it was completely suspending passport issuance.
A Singapore-based wealth management consultant in the city-state says in recent months she has effectively been moonlighting as a travel agent as her wealthy Chinese clients try to skirt the official edicts against all “unnecessary travel”.
“Even if people can’t leave, they are drawing up plans to do so. They want to feel like they have that choice,” says the consultant, also asking not to be identified.
She adds that, even for wealthy clients, finding lawyers in China who will notarise or translate documents required for overseas travel was also becoming more difficult. “A lot of lawyers won’t take these cases . . . If your passport has expired, then it’s a disaster,” she says.
Beijing’s rules might well have stifled a larger exodus. However, CFR’s Yanzhong Huang says people’s attempts to leave illustrates they are “losing patience and confidence”.
“They don’t feel like there is a future with the repressive political atmosphere and weak economy. They’re voting with their feet.”
The collective angst — from migrant workers up to the elites — adds pressure on the party leadership just months out from the 20th CCP congress expected in November, when Xi is set to break from term limits to cement unrivalled future rule.
Experts warn that if economic conditions worsen and social controls are ratcheted up again, faith in the Chinese leadership will be further undermined.
Yet Beijing shows no sign of changing course. A new layer of zero-Covid infrastructure is even now descending on cities across China. Officials are racing to erect testing sites no more than a 15-minute walk apart while a construction drive ramps up for new hospitals and centralised quarantine facilities, signs of Beijing’s commitment to using mass testing, contact tracing and quarantines to suppress further large-scale Covid-19 outbreaks through 2023.
Dissent, vanishingly rare in China, may yet bubble up. The staging of nightly protests in Shanghai, during which residents banged pots and sung from their balconies, as well as occasional clashes between Beijing students and other groups with police is evidence that, even in China, frustration can quickly erupt.
The state remains on high alert to guard against it. Most reports critical of the zero-Covid policy are swiftly stamped out by Beijing’s censors and tech platforms such as Tencent and Weibo, so too are episodic waves of memes and other social media commentary reflecting the dissatisfaction.
But China-watchers are looking to the autumn party summit as a potential crunch point. “In the best of times, such political meetings of party elites are seen for what they are: political pageantry,” says Diana Fu, an expert on China’s domestic politics with the Brookings Institution think-tank. “During times of crisis, they may serve as a focal point for social unrest.”
Beijing’s unwavering dedication to suppressing the virus in spite of the signs of frustration and alienation can be seen as a sign of things to come, says Kerry Brown, a professor of Chinese Studies at King’s College, London and author of Xi: A Study in Power, as Xi embraces an “imperial” style of governing.
“The Covid lockdowns are a clue as to where you get to when that sort of power is invested in one person,” he says.
Additional reporting by Maiqi Ding in Beijing. Data and visual journalism by Andy Lin in Hong Kong
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