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The highlights this week: Lockdowns put China’s trucking industry under enormous strain, new data shows a major birth rate drop since the start of the pandemic, and China’s UnionPay card payment system blocks Russia’s Sberbank.

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The highlights this week: Lockdowns put China’s trucking industry under enormous strain, new data shows a major birth rate drop since the start of the pandemic, and China’s UnionPay card payment system blocks Russia’s Sberbank.

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Lockdowns Strain China’s Trucking Industry The chaos caused by the coronavirus outbreak in Shanghai continues, despite authorities releasing several million people from lockdown. Supermarkets in some areas have reopened, but some residential compounds have still been locked down for more than a month—and any nearby positive case resets the clock. Although new cases have fallen slightly, citizens see little end to their frustration in sight.

If China sticks to what the government calls a dynamic zero-COVID-19 policy, lockdowns like Shanghai’s will remain common. The strategy that kept the virus out of mainland China for two years has proved ineffective against a far more contagious variant. While the restrictions will continue disrupting global supply chains, they will hit logistics within China the hardest.

Trucking, which underpins China’s economic order, is under enormous strain. The industry is fragmented and economically marginalized, making it highly vulnerable to disruptions. And the COVID-19 lockdowns are striking at its weakest points.

In China, 76 percent of freight travels by road, but the industry is fragmented. Almost all Chinese truckers are owner-operators: Around 90 percent own their own vehicles. (In the United States, that figure is about 9 percent.) Moreover, major vendors in China don’t have their own fleets; instead, even major supermarkets move their goods on a contract basis with independent truckers.

China’s 28 million truckers have fallen down the status ladder in the last few decades. Today, average gross income for truckers is around $20,000 a year—nearly twice the national average, making them relatively highly compensated. However, they are also subject to arbitrary and uncertain costs; as independent operators, they have no safety cushion. Many truckers are still paying off significant loans on their vehicles.

Vehicle upgrades are often out of financial reach, so China’s trucks are largely unrefrigerated, causing problems for the cold storage chain. The rate of damage to fresh cargo is estimated at 20 to 30 percent, much higher than in developed countries, which has fostered food safety concerns among the public. The cold chain issues have worsened food shortages, with drivers often forced to dump unrefrigerated goods if they are delayed.

Furthermore, truckers are subject both to predatory middlemen and arbitrary fees and tolls, as well as shakedowns by traffic police. Until relatively recently, an informal group of connected operators arranged contracts between businesses and truckers, taking a substantial cut. According to truckers I interviewed in the 2010s, middlemen also threatened drivers who tried to band together in larger groups and even discouraged companies from forming their own fleets.

The arrival of mobile apps that connected firms with truckers and large amounts of venture capital in the late 2010s undercut the middlemen and disrupted the old business. However, the apps have proved almost as exploitative to drivers as the previous system. Trucking giant Manbang Group, formed by a contentious merger in 2017, now controls more than 90 percent of the market and forces drivers to underbid each other for contracts.

Meanwhile, China’s highway tolls are among the highest in the world. A toll freeze helped keep trucking afloat during the initial COVID-19 outbreak in 2020 but nearly bankrupted toll operators, who have sought to make up the losses with arbitrary increases. Truckers have protested and attempted strikes for the last two decades to little avail—not least because China uses police power to disrupt organized labor efforts.

The pandemic, especially the recent restrictions, has upended the already fragile balance of the trucking industry. Authorities fear that drivers could transport the virus with them; their routes are recorded on mobile health apps. An investigation by Caixin showed that truckers face extra risk of arbitrary detention. Some have been stranded on the highway by provincial or town officials who refuse them entry. The freight is also subject to unnecessary scrutiny because of authorities’ conspiracy-driven insistence that frozen goods can carry COVID-19.

Since truckers are contractors, getting stuck under lockdown means losing two or more weeks of income. Most truckers are now avoiding entering high-risk areas or charging premiums to do so. As a result, the amount of freight on the road has decreased, evident by China’s uncongested highways. The decrease is already undermining attempts to restart Shanghai’s manufacturing and will get worse if other hubs experience fresh outbreaks. It’s currently planting season, but seeds are sitting in warehouses, failing to reach the fields.

In the long term, the crisis may be a push to consolidate the industry. In the short term, if the government wants to keep Chinese road freight afloat but can’t abandon its zero-COVID-19 policy, there are three possible moves. First, it could abolish highway tolls again, incentivizing drivers to get back on the road. The more effective move—although bureaucratically complex—would be to create an ad hoc COVID-19 insurance system, offering truckers guaranteed incomes if they get caught by lockdown measures.

The most likely outcome, however, is the wider deployment of the People’s Liberation Army to manage logistics, as happened in Wuhan in 2020. The authorities have since been more reluctant to roll out the military for fear of causing panic, but, given the scale of crisis, that may change.

What We’re Following

Official birth rate plummets. Recent data shows that China experienced an incredible 30 percent birth rate drop between 2019 and 2021, following years of decline due to family pressures and the costs of child rearing. Lockdowns caused birth rate busts worldwide and clearly played a role in China, but increased economic uncertainty also seems to be a powerful factor.

Chinese average household debt is rising, and I would expect an even bigger fall in the birth rate this year due to widespread financial concerns. As Helen Gao recently argued in FP, the cultural impact of the one-child policy in China also reshaped expectations about what was normal in child-rearing; only children may feel uncomfortable with having multiple children themselves.

There are few issues that worry China’s political leadership more than declining birth rates. The country’s demographics are concerning, especially as its last baby boom group—born in the 1960s and 1970s—heads into retirement. While the United States and Europe make up for low birth rates with high immigration, China has very little permanent immigration and a high degree of ideological paranoia about incoming foreigners.

The Great Translation Movement. Chinese state media has launched attacks against the Great Translation Movement, a loose alliance of anonymous online dissidents dedicated to translating government propaganda and online commentary (especially nationalist content) into English. The Chinese government has realized in the last few years that Chinese-language material is far more likely to be read in the West than in the past, thanks to both growing language skills—both human and mechanical—and easy access to content.

This trend is troubling for authorities in part because it plays a double game in which foreign-directed English-language content is relatively mild, using the language of peace and internationalism, while domestic Chinese-language content is often paranoid, nationalist, and violent. As so-called wolf warrior diplomacy shows, if it’s a choice between giving up one or the other, the nationalist language often wins.

Shanghai admits COVID-19 deaths. The official COVID-19 death toll in Shanghai now stands at 17 people, all elderly. This confirmation comes after weeks of the authorities claiming that Shanghai had seen zero deaths from the virus, even as official case numbers hit more than 200,000. Case fatality rates vary between countries, but even assuming a 0.5 percent death rate, one would expect to see around 1,000 deaths in Shanghai.

Deliberate and systematic underreporting of deaths may not actually serve the Chinese government’s best interests. At the moment, the anger in Shanghai is largely directed against lockdowns rather than the risk of illness; making the virus seem less threatening doesn’t help with that.

Tech and Business

Sberbank blocked from UnionPay. Forecasts about growing Sino-Russian financial integration following sanctions took a hit today after UnionPay, the main Chinese card payment system, refused to cooperate with giant Russian bank Sberbank. UnionPay faces two types of pressure. One is obvious: The system doesn’t want to lose its ability to work with Western financial institutions through secondary sanctions.

But the Chinese government may also be setting a clear line that it will offer rhetorical support to Moscow, but it won’t get involved in another trade war or exchange of sanctions with the United States at an economically vulnerable time.

IMF slashes growth forecast. Both public and private groups are cutting China’s GDP growth forecasts for the year in the wake of the COVID-19 outbreak in Shanghai and the anticipation of future lockdowns. The International Monetary Fund has dropped its forecast to just 4.4 percent, significantly below China’s target of 5.5 percent. Others place it at between 4.2 and 4.8 percent.

The Chinese government claims it remains confident in its targets, even as it acknowledges problems. Even those estimates could drop significantly if the omicron variant causes further lockdowns on the scale of Shanghai’s; in addition to trucking disruptions, ports remain dramatically backed up.