China may have ‘passed the point of no return’ as Covid infections soar

BEIJING – Rising Covid infections in mainland China will make it difficult for the government to achieve zero-covid without returning to strict lockdowns, said Larry Hu, Macquarie’s chief China economist.

In the past few days, the daily case count has climbed to around 28,000 or more — close to levels seen in April during a strict lockdown in Shanghai, according to a CNBC count of Air Information data. Statistics show that the last time mainland China saw just a handful of daily infections was in June, shortly after Shanghai eased its restrictions.

The latest Covid wave has hit the southern city of Guangzhou, the capital city of Beijing and many central parts of China – prompting local authorities to tighten restrictions on business and social activity this month.

The road to the reopening is set to include several back-and-forths.

I’m Larry

Chief China Economist, Macquarie

“China may have already passed the point of no return, as it is unlikely to achieve zero Covid without another Shanghai-style strict lockdown,” Hu said in a report on Tuesday. That is, flatten the curve by tightening Covid controls for the time being.”

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Hu pointed to some changes in government policy and propaganda this month as officials prepare to reopen in the next six to nine months. But he noted that “the road to reopening is set to involve a lot of back and forth.”

Markets have speculated for weeks about the timing of China’s departure from its strict zero-covid policy. The controls have weighed on the economy, which barely grew while Shanghai was locked down and posted growth of just 3% in the first three quarters of the year.

We think China will fully open up in the third quarter of 2023, says UBS

In GDP terms, about 20% of China’s economy was negatively affected by the Covid containment as of Monday, close to the high of 21.2% recorded during Shanghai’s lockdown in mid-April, Nomura’s chief China economist Ting Lu said, citing the firm’s model.

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“Beijing has recently shown early signs of willingness to reopen, and it has rolled out some fine-tuning measures, but reopening could be a long process with inconvenience,” Lu said in a separate report this week.

He said Vietnam’s lifting of its Covid restrictions since fall last year could shed light on the way forward for China. He noted how the Southeast Asian country “did not experience an immediate increase in transition after the pivot,” while its GDP rebounded.

Covid control has been tightened in Beijing

Local authorities in China face the difficult task of trying to make Covid measures more targeted, while controlling infections.

As of Monday, about 412 million people were affected by the lockdown measures in mainland China, according to Nomura estimates. That’s up from Rs 34 crore in the previous week, the report said.

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Why China shows no sign of backing down from its 'zero-Covid' strategy

Nomura analysts noted that many lockdowns or controls are implemented without public announcement. “We believe [the southwestern municipality of] Based on our observations of several mobility metrics, Chongqing is currently experiencing the most severe local lockdowns in China,” the report said.

Since Tuesday, only in Beijing, the Covid control has been tightened.

Officials announced requirements for continued virus testing, and ordered more restaurants to suspend in-store dining. Many shopping malls are closed, as are large parks. Various apartment compounds have been closed.

State media said on Tuesday that the city’s technology-focused Zhongguancun forum that was scheduled to start this week will be postponed until next year. The conference had been delayed since September.

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