Disrupted and Rebuilt: The Untold Impact of Economic Network Restructuring on China’s Post-Lockdown Recovery

Abstract

Following the end of the zero-COVID policy, China’s economic recovery elicited high hopes but turned out to be disappointing in 2023. This paper provides a novel explanation for the slow economic recovery based on economic network disruption and restructuring after major shocks. The supply-demand connections, once disrupted by lockdowns, could not revert to their pre-COVID-19 or pre-Omicron state after reopening. Instead, they underwent further restructuring, incurring considerable transaction costs. Using a unique dataset of 1,404,335 heavy trucks with over 1.1 billion inter-city origin-destination records, we find that although freight workload started to grow following the lifting of lockdown measures, it remained below pre-COVID-19 or pre-Omicron levels even seven months after reopening. The observed recovery pattern is primarily driven by a surge in short-distance travel, contrasting with a decline in long-distance travel. We show that this shift signifies a restructuring process of connections within the network, which takes time to materialize and might lack logistics efficiency. Moreover, this restructuring has reshaped the landscape of China’s economic geography. It strengthened the economic connections within city clusters while weakening those between them. The core cities of conventional economic growth poles experienced a sluggish recovery. Finally, we provide empirical evidence that the network restructuring is associated with previous disruptions induced by lockdowns. Our analysis offers new insights into the recovery dynamics of economies post major economic shocks.

Keywords: Economic Recovery, Post-Lockdown, Network Restructuring