When Capacity Encounters Crisis: Subnational Governments' Heterogeneous Response to the "Zero-Covid" Policy in China

Nearly three years after the first pandemic outbreak, China relaxed its Zero-Covid policy. During the period of strict control, some local officials flexibly achieved both pandemic control and economic recovery with targeted measures, while others insisted on stringent policies with large-scale lockdowns even when the number of infected cases was low. Under the uniform Zero-Covid policy, why did subnational governments facing a similar level of infection adopt different lockdown decisions? This paper argues that state capacity is key to understanding heterogeneity in policy implementation. Specifically, using a two-way fixed effects model, this paper provides robust evidence that, first, fiscal capacity, the conventional dimension of state capacity, does not significantly influence lockdown decisions. Second, medical capacity, the capacity closely related to the policy goal, explains the variation: cities with weaker medical capacity, i.e., fewer medical workers for achieving pandemic control, are more likely to prefer strict measures with large-scale lockdowns, while high-capacity cities prefer targeted measures with small-scale lockdowns. Third, different dimensions of capacity are not necessarily correlated: cities with strong fiscal capacity do not necessarily have strong medical capacity. In sum, state capacity is multidimensional and varies across localities, and heterogeneity in policy implementation is shaped by capacity contingent on the policy goal, especially in times of crisis.