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Beijing quashes market rumors of a faster end to the zero-Covid policy

Beijing has dashed hopes of an immediate easing of the country’s rigid zero-Covid restrictions, setting China-linked stocks up for more volatile trading on Monday, analysts said.

China’s National Health Commission reiterated the country’s commitment to eliminating Covid-19 at a press conference on Saturday and warned that the situation was set to become even “more serious and complex” as the country entered the winter flu season.

“Practice has proven that our pandemic prevention and control strategy . . .[is]absolutely correct, and such measures have proven to be the most economical and effective,”[ads1]; said Hu Xiang, an NHC official.

Investors last week seized on rumors that Beijing was considering easing restrictions. Chinese shares listed in Hong Kong had their best week in more than seven years, while Shanghai-listed shares recorded their biggest weekly gain since July 2020.

Beijing has stuck to the country’s zero-Covid policy, in which most international visitors are barred from entering China and cities can be locked down without warning, despite growing complaints from residents.

The daily number of Covid infections in China hit a six-month high of 4,420 on Saturday, official data showed. The skyrocketing case numbers also meant a lower likelihood that the government would ease the Covid curbs despite some recent positive signs, such as the removal of a PCR test requirement for rail and domestic flights.

“Markets took note of these developments and began to speculate on a faster exit by the Chinese government from its ‘dynamic zero-Covid’ policy,” Goldman Sachs analysts said. “However, as confirmed by the press conference, the government must still maintain its zero-Covid policy until all preparations are made.”

Investors have also been positive following a report that China plans to reduce the time travelers must spend in hotel quarantine from 10 days to seven or eight. The former chief epidemiologist at the Chinese Centers for Disease Control and Prevention, Zeng Guang, on a call hosted by Citi, also said that the authorities plan to reopen the border between Hong Kong and mainland China in the first half of next year, which will further add to the sentiment .

“As government preparations begin, increased pricing of China’s reopening in a forward-looking market may be warranted,” Goldman analysts said. “However, it is worth emphasizing that we are still at least a few months away from the actual reopening.”

Investors also point to an article in the state-run People’s Daily newspaper that downplayed the long-term impact of Covid infections on human health, saying most symptoms were mild. This was interpreted as the state preparing the public for a possible official downgrading of the Covid threat.

“The market is picking at the facts looking for signs of zero-Covid relaxation,” said Feng Chucheng, a partner at research firm Plenum, in Beijing. “The bottom line for understanding China’s politics is, the greater the prominence attached to a specific policy, the more sophisticated maneuvering such a political exit will require.”

Market sentiment in Chinese stocks was also lifted on Friday as the US Public Company Accounting Oversight Board concluded on-site inspections of Chinese companies’ audit data in Hong Kong.

The move is a step toward a decision, expected in December, on whether Washington will allow more than 200 US-listed Chinese firms to retain their presence in US markets. The US is demanding unrestricted access to Chinese companies’ accounts in a long-running dispute with Beijing.

The PCAOB declined to comment.

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