How COVID-19 Transformed China’s Domestic and International Trajectory

Five years after the novel coronavirus first emerged, China’s major metropolises bear virtually no visible scars of their unprecedented battle with COVID-19. The streets of Beijing, Shanghai, and Shenzhen have shed all traces of that extraordinary period – gone are the ubiquitous testing booths and hazmat-suited workers that once dominated the urban landscape. The bustling crowds that defined these cities before the pandemic have returned in full force. In January 2024, Sinovac, a major inoculation manufacturer in China, reportedly halted its COVID-19 vaccine production. Indeed, the term “xinguan” (COVID-19) has all but vanished from state media and social discourse, as if the virus were merely a passing shadow, a brief aberration in the nation’s unstoppable rejuvenation.

Yet beneath this veneer of normalcy, deep fissures remain. The promised economic renaissance following the abandonment of the zero-COVID policy in December 2022 has failed to materialize. International tourism lags far behind pre-pandemic levels, while political control has only been tightened. The collective silence surrounding the pandemic speaks not of healing but of fear – people avoid the topic not because they’ve moved on, but because they’ve learned the price of speaking too freely about those turbulent years. Privately, an increasing number of individuals are complaining of long-term side effects following their COVID-19 vaccination.

The jarring disconnect between China’s surface normalcy and its underlying tensions raises a fundamental question: How has COVID-19 – and more importantly, the government response to it – fundamentally reshaped Chinese society?

Despite official attempts to move past this chapter of history, the pandemic left an indelible but mixed imprint on everything from patterns of socio-economic development to China’s state apparatus and foreign relations.

The Economic Impact

The pandemic’s impact on China’s economy has proven more nuanced and less linear than initially understood. While China experienced a significant economic contraction in the first quarter of 2020 as COVID-19 emerged in Wuhan, its swift containment of domestic transmission enabled a remarkable recovery. China emerged as the only major economy to achieve positive growth in 2020, followed by robust 8.4 percent growth in 2021 – its fastest expansion in a decade.

However, this momentum proved unsustainable. The economy decelerated sharply to 3 percent growth in 2022. This economic lull persisted through 2023 and 2024, despite government monetary and fiscal stimulus measures. Unemployment rates among the youth continued to rise, reaching levels so alarming (over 20 percent) that the government stopped publishing the data in August 2023. Top Chinese economists project growth rates to remain between 3-4 percent in the coming years, marking a significant departure from the high-growth era that characterized China’s pre-pandemic development. The ongoing economic downturn led many to conclude that China’s growth model has come to an end.

Economists debate the role of the pandemic in China’s economic slowdown. While some view the pandemic as a critical juncture for China’s economic trajectory, leading to increased government intrusion into society and economy, others argue instead that many of China’s economic challenges predated COVID-19, and the slowdown is more a result of the government’s failure to significantly overhaul its preexisting growth model. But even those who downplayed the pandemic’s economic impact find it difficult to dispute the fact that COVID-19 accelerated preexisting structural trends and narrowed the policy options of Chinese leaders in revitalizing the country’s economy.

To begin with, the pandemic deepened real estate and local debt crises in China. As Professor Jean Oi noted in an analysis for The China Story, the complacency over pandemic control in summer 2020 prompted Beijing to crack down on real estate borrowing. This not only crippled a sector that accounts for a quarter of China’s economy, but also devastated local governments’ traditional revenue source from land sales, forcing them to rely heavily on off-balance-sheet borrowing through local government financing vehicles. The cumulative effect has pushed China’s overall debt beyond 300 percent of GDP – surpassing even the United States’ level – and created a precarious financial situation that continues to weigh on the country’s economic recovery.

Second, economic uncertainty stemming from pandemic-era income losses and the experience of sudden lockdowns undermined consumer confidence, leading to defensive spending habits that persist long after restrictions were lifted. State media acknowledged that the extremely high gross domestic saving rate – over 44 percent in 2023 – reflects “people’s growing insecurity about the future and their inclination to save as a precaution against risks.” Despite Beijing’s efforts to boost consumption over the past year through measures ranging from interest rate cuts to consumer goods trade-in programs, the slowdown in household deposits has not yet translated into increased consumption.

Third, China’s zero-COVID policy, coupled with mounting geopolitical tensions, triggered a stunning reversal in foreign investment – from record-high FDI inflows in early 2022 to a historic plunge by late 2023, when foreign investment turned negative for the first time in decades. Surveys from the European and American Chambers of Commerce in China consistently identified the country’s zero-COVID controls as a significant barrier to conducting business. Despite China’s eventual abandonment of zero-COVID measures, the damage to investor confidence has proven lasting, with foreign investors pulling nearly $15 billion from China in early 2024, marking a paradigm shift in global business attitudes toward the Chinese market.

The impact of COVID-19 on China’s international trade reveals a complex pattern of initial resilience followed by persistent instability. While pandemic-induced disruptions caused a brief dip in trade figures in early 2020, research by Mary Everett Hancock and Jesse Mora indicates that the severity of the impact varied based on trading partners’ positions in global supply chains, with Chinese exports experiencing greater disruption than imports. China’s exports staged a remarkable recovery by mid-2020 and surged throughout 2021, generating substantial trade surpluses. However, both exports and imports displayed marked volatility during 2023-2024, with exports fluctuating between peaks and troughs while imports trended downward, reaching negative 3.9 percent by November 2024 – reflecting both unstable global demand and persistent weakness in domestic consumption.

Significantly, the pandemic has not hindered China’s growing advantage over the United States and other Western nations in developing advanced technologies and retaining talent. A 2023 Australian Strategic Policy Institute study found that China leads in 37 of 44 critical technologies. While Washington’s technological decoupling from Beijing has slowed China’s progress in sectors like semiconductors, it has not impeded Chinese advancement in electric vehicles and batteries. In fact, these restrictions may have spurred Beijing to intensify its pursuit of global dominance in electric vehicles, robotics, and rare earth materials.

Social and Political Impact

The pandemic’s social and political impact on Chinese society has also been profound and multifaceted. While the government’s initial mishandling of the coronavirus outbreak and the public mourning following Dr. Li Wenliang’s death on February 4, 2020 sparked speculation about China’s potential “Chernobyl moment,” the outcome proved different. As China emerged as an early victor against the virus, public trust in the central government and the political system increased, with many attributing this success to China’s capacity to implement restrictive measures deemed impossible in Western democracies. Societal cooperation not only sustained zero-COVID measures for the next three years but also facilitated the rise of a high-tech surveillance state.

However, the zero-COVID policy of 2020-2022 demonstrated both the strength and limits of state power. While exemplifying unprecedented state control, the policy ultimately collapsed in the face of the A4 or White Paper movement, the largest protests in decades. An estimated 1.41 million people died shortly after the abrupt policy pivot.

The aftermath of COVID-19 left a profound legacy of disillusionment, particularly among young people who witnessed both the social upheaval of widespread protests and the devastating loss of life during the pandemic. A growing number of them have embraced “lying flat” – a passive resistance to societal pressures. Recent Peking University survey data reflects this shift: While previous surveys attributed poverty primarily to personal factors, by 2023, structural issues like unequal opportunities emerged as the dominant perceived causes.

This loss of confidence has manifested in various ways. There has been a surge in emigration attempts, with U.S. Customs reporting 37,000 Chinese citizens attempting illegal border crossings from Mexico in 2023 – ten times the pre-pandemic figures. Domestically, there is a notable shift toward public sector employment, viewed as a safe harbor in uncertain times. Some characterize this period as “the garbage time of history,” reflecting a fatalistic worldview.

The reality, however, is more nuanced. While young Chinese are increasingly experiencing “consumption downgrade” and a sense of resignation, their older counterparts demonstrate greater financial stability and resilience. The post-pandemic social transformation has not fundamentally challenged state legitimacy, either. If anything, civil society has grown weaker, while regime support remains robust among key constituencies – particularly formal sector retirees and the substantial rural population. Nationalism continues to be a powerful source of regime legitimacy, as evidenced by a recent Tsinghua University survey showing nearly 90 percent of respondents believe the United States seeks to contain China’s development.

Significant governance challenges do exist. While the state has intensified control measures in pursuit of stability, its administrative capacity has paradoxically deteriorated. Local governments are grappling with severe fiscal constraints, undermining their ability to deliver essential public services. This decline is evident in national statistics showing a continuing exodus from the Urban and Rural Resident Basic Medical Insurance scheme, which covers 68 percent of the population. The program lost 21 million subscribers in 2023, following a 25 million decrease in 2022. Signs of bureaucratic disengagement are also emerging, symbolized by the widespread phenomenon of officials playing guandan poker during work hours. This growing divergence between the state’s control ambitions and its diminishing administrative effectiveness presents a critical challenge for China's governance future.

Foreign Policy Implications

The pandemic’s impact on cross-border exchanges remains substantial two years after China scrapped zero-COVID policies. Beijing, once a vibrant hub for international exchange, has seen its foreign resident population plummet to just 22,000, down significantly from 37,000 a decade ago. The decline in international education is particularly stark: The number of American students on long-term visas has dropped dramatically from nearly 12,000 in 2019 to just over 1,100 today. Despite government efforts to boost inbound tourism, visitor numbers remain well below pre-pandemic levels, suggesting a deeper shift in global perceptions and engagement with China that extends beyond immediate health concerns.

COVID-19 accelerated the deterioration of China-U.S. relations, transforming from a health crisis into an ideological and geopolitical battleground. Both powers weaponized pandemic assistance – Beijing through “mask diplomacy” and “vaccine diplomacy,” Washington through bilateral aid and Quad partnerships.

More critically, the pandemic exposed the United States’ strategic vulnerabilities, including its dependence on Chinese pharmaceutical ingredients and medical supplies. This realization has catalyzed a broader decoupling agenda, from restricting Chinese access to chip technologies to erecting new barriers against Chinese imports, such as electric vehicles and semiconductors, just as Beijing is attempting to boost manufacturing and exports to counter weak domestic demand. Citing national security concerns, the U.S. Biosecure Act aims at restricting U.S. drugmakers from using key Chinese contract manufacturers.

The controversy over COVID-19’s origins has become a persistent source of bilateral tension, generating a spiral of mistrust and accusations. During the pandemic, bilateral cooperation on public health was notably absent. Even now, despite the clear imperative for collaboration, joint action against future pandemic threats remains elusive. Worse, as the U.S. Congress has made China’s cooperation on the origins investigation a precondition for broader public health collaboration, the impact has spilled into the scientific realm, resulting in suspended research funding and diminished academic partnerships between U.S. and Chinese institutions. The recent determination by the Select Subcommittee on the Coronavirus Pandemic that COVID-19 likely originated from a Wuhan laboratory suggests that the origins debate will continue to strain China-U.S. relations through the new Trump administration.

The pandemic has also triggered a shift in global power dynamics. While China’s initial success in containing the virus temporarily bolstered its economic prowess and global standing, the trajectory reversed dramatically from late 2021 onward. China’s share of U.S. GDP, which peaked at 76 percent in 2021, declined to 70 percent in 2022 and further dropped to 67 percent in 2023. Many of China’s soft power gains from the early pandemic period also evaporated as its zero-COVID strategy faltered and its vaccines lost appeal in the international market. Contrary to earlier predictions of “the East rising and the West declining,” recent trends suggest a shift in the power balance favoring the United States. The widening $10 trillion GDP gap between the two nations has fueled an emerging narrative of China as a “peaking power” rather than an unstoppable force.

Yet China’s influence remains resilient. As Nicholas Lardy noted in Foreign Affairs, its economy has grown 20 percent since 2019 – outpacing the United States’ 8 percent expansion. Despite China’s economic slowdown and the expanding China-U.S. GDP gap, the official “the East is rising and the West is descending” narrative still resonates strongly with the Chinese public. According to the Tsinghua survey, 91 percent of respondents believe China’s influence has increased in the past five years, while 59 percent think U.S. influence has declined.

While its image has suffered in developed nations, China maintains strong support in the Global South. The 2024 ISEAS survey notably showed Beijing surpassing Washington as Southeast Asia’s preferred partner. Amid growing tensions with Western countries, China is rebooting its Belt and Road Initiative, with a renewed focus on the Global South. This strategic pivot echoes the Mao Zedong-era competition for influence in the “intermediate zones,” where China may find more receptive partners for its development model and global vision.

Conclusion

Throughout history, pandemics have served as inflection points that reshape societies and reconfigure global power dynamics. From the Black Death’s role in transforming medieval European society to the Spanish Flu’s influence on 20th-century international relations, the pandemics have consistently catalyzed profound institutional and geopolitical changes. COVID-19’s impact on China proves no exception to this historical pattern.

Five years after its emergence, the pandemic’s legacy in China reveals a complex tapestry of resilience and vulnerability. While COVID-19 appears to have become a forgotten pandemic in China, the social and institutional aftershocks persist. The state emerged with its authority seemingly intact and nationalism remaining robust. However, it faces mounting governance challenges – from youth disillusionment and declining administrative capacity to local fiscal strain. This paradox of enhanced control amid declining governance effectiveness defines China’s post-pandemic trajectory.

The pandemic has also reshaped the trajectory of China’s international ascendance and China-U.S. competition, though not in the linear fashion many predicted. While China’s initial success in containing the virus temporarily bolstered its global standing, subsequent developments – from its draconian zero-COVID policy to the origins controversy – have tipped the China-U.S. power balance and intensified geopolitical competition and mutual distrust.

Yet the resulting geopolitical realignment resists simple narratives of decline or ascendance. Despite China’s relative power ebbing from its 2021 peak, its economic heft and diplomatic influence persist, particularly in the Global South. As Beijing pivots toward lower- and middle-income countries while grappling with domestic challenges, the post-pandemic landscape appears poised for a protracted period of strategic competition, where the ultimate arbiter of supremacy may well be time itself.