China is moving from Covid-zero, but it will not be the right way forward

BEIJING – As mainland China relaxes many of its strict Covid controls, analysts point out that the country is far from a quick return to a pre-pandemic situation.

National authorities announced sweeping changes on Wednesday to make it easier to travel domestically, keep businesses open and allow Covid patients to be quarantined at home.

“These measures are very welcome for an economy that has been hit hard this year,”[ads1]; Nomura’s chief economist Ting Lu and a team said in a report.

“However, we would also caution that the road to full reopening may still be gradual, painful and bumpy,” they said. The country does not seem well prepared for a massive wave of infections, and the infection rate of 0.13% leaves the country well below what is needed for herd immunity, according to the report.

Mainland China’s daily Covid infections, mostly asymptomatic, rose to a record high of over 40,000 in late November. The number has since declined as cities reduced requirements for virus testing.

The road ahead for China’s reopening could take a few months, with a likely spike in infections, according to a Dec. 4 Goldman Sachs report.

“With the majority of the population uninfected before reopening, lower vaccination rates for the elderly than many other economies, and cultural similarities, we believe Hong Kong and Taiwan’s reopenings are most relevant to Mainland China,” said China’s chief economist Hui Shan and a team.

“Their experience suggests that cases are likely to skyrocket upon reopening and linger for some time, a high vaccination rate for the elderly is key to a safe reopening, and mobility declines sharply as cases increase,” the Goldman report said.

In the past two months, Taiwan no longer required international travelers to quarantine upon arrival, saying people did not need to wear masks outdoors.

Last week, mainland Chinese authorities announced a new push to vaccinate the country’s elderly.

In the short term, about 60% of people could be infected, regardless of how the policy is adjusted, Feng Zijian, former deputy director of China’s Centers for Disease Control and Prevention, said Tuesday during a talk at Tsinghua University. He said the number could eventually rise to 80% or 90%.

New measures released by the Health Commission on Thursday focused on how to treat Covid patients at home, and included a list of medicines.

Whether out of necessity or precaution, local demand for related medicines was already growing.

JD Health said online sales have risen for cold medicines, fever-reducing medicines and related products. The company said its latest data showed transaction volume for the week ended Monday increased 18 times compared to October.

Looking ahead, it is quite clear that China’s Covid policy is about to cross a turning point, said Bruce Pang, chief economist and head of research for Greater China at JLL.

Starting Wednesday, negative virus tests are no longer required to travel in China, while large numbers of people usually travel around the upcoming Lunar New Year holiday, he said. That means there could be an increase in Covid infections, and China’s policy will never back down, Pang said.

Chinese travel booking website Trip.com said following the easing of domestic travel policies, searches for the Lunar New Year, which falls at the end of January 2023, rose to a three-year high.

The health authorities emphasized on Wednesday that the latest changes do not imply a complete reopening. There was no reduction in the quarantine period for international travelers and the measures include cases where a negative virus test is still required.

At the local level, the city of Beijing said Wednesday night that people who want to eat in restaurants must still show a negative virus test from the past two days.

But it is taking longer to process virus test results due to an increase in positive cases, local Beijing media reported on Wednesday, citing a virus testing company worker. Since virus tests are conducted in groups of 10, if one person’s result turns up positive, the machine has to process additional tests, the report said.

Goldman Sachs analysts expect China’s reopening – defined as a shift away from lockdowns – to come in the second quarter of 2023, according to a separate report on Wednesday.

“An earlier-than-expected reopening would add more downside pressure to growth in the near term, but moderate upside risk to our 2023 full-year GDP growth forecast,” the analysts said.

They expect any initial reopening to create a drag on the economy “due to rising infections, a temporary labor shortage and increased supply chain disruptions.”

Goldman predicts 3% growth for China’s economy this year, and 4.5% in 2023.