A conflict between the statements of China’s President Xi Jinping, who is calling for a strict, zero-COVID policy, and Premier Li Keqiang, who is calling for balancing COVID measures with economic growth, is brewing in China.

Many ground-level government officials are paralyzed, unsure of whose orders to follow. Such a condition is rare in a country where official dictates are followed immediately by subordinates eager to serve. Many officials chose to err on the side of caution, given strict punishments which will be inflicted if a lower level leader allows an outbreak to occur in their region of responsibility, and limited reward given to officials who manage to promote economic growth.

Indeed, when Premier Li Keqiang held a meeting about economic growth with officials from nearly all government departments including propaganda, environment, and utilities, the top-ranking Communist Party Officials failed to show up, citing the need to focus on ensuring there were no outbreaks in their areas of responsibility.

Trey McArver, co-founder of research firm Trivium China. noted of Li, that, “He is being put in the impossible position of trying to rescue the economy without being able to adjust the one policy — zero-Covid — that is causing the most economic damage.”

As a result of the paralysis, the benchmark CSI 300 Index slid as much as 1.1% Wednesday, before remaining flat, as Hong Kong shares declined. The latest official data showed a contraction in industrial output, the first time since 2020, and a jump in the April jobless rate to 6.1%, close to a record. May data showed the economy remained depressed, according to a Bloomberg aggregate index of eight leading indicators.

Xi has chosen to not address the economic issues directly, saying only that, “China’s resolve to open up at a high standard will not change and the door of China will open still wider to the world.” Meanwhile with respect to COVID, Xi has pushed a zero-COVID policy, while targeting a 5.5% GDP growth this year – a growth rate about 1% higher than Bloomberg’s 4.5% estimate.

Still, some are hopeful the worst of the COVID lockdowns are over and the recover can begin in earnest soon. James Sullivan, head of Asia Pacific equity research at JPMorgan Chase & Co. said, “Premier Li’s speech yesterday was incredibly important in adjusting expectations to a more realistic position. Then we can start to look forward.”

Image of Xi Jinping courtesy of Wikipedia.