China is shifting away from Covid-zero, nevertheless it won’t be a straight line ahead

Passengers wait to board a train at Hongqiao railway station in Shanghai on December 6, 2022.

Hector Retamal | AFP | Getty Images

BEIJING — As mainland China relaxes many of its tight Covid controls, analysts caution the country is far from returning to a pre-pandemic situation quickly.

National authorities announced sweeping changes on Wednesday to make domestic travel easier, keep business running and allow Covid patients to quarantine at home.

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

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

Daily Covid infections in mainland China, mostly asymptomatic, rose to a record high of over 40,000 in late November. The number has since declined as cities have reduced virus testing requirements.

According to a Dec. 4 report by Goldman Sachs, the road to China’s reopening could take a few months, with a likely spike in infections.

“With most of the population uninfected before the reopening, lower vaccination rates among the elderly than many other economies, and cultural similarities, we believe the reopenings in Hong Kong and Taiwan are most relevant to mainland China,” the Chinese said Chief Economist Hui Shan and a team.

“Their experience suggests that as cases reopen, cases are likely to spike and linger for a while, high immunization coverage among the elderly is key to safe reopening, and mobility decreases sharply as cases increase,” reads in the Goldman report.

For the past two months, Taiwan has stopped requiring international travelers to quarantine upon arrival and said people are not required to wear masks outdoors.

60% of people can get Covid

Last week, mainland China authorities announced another push to vaccinate the elderly in the country.

In the short term, about 60 percent of people could be infected no matter how policies are adjusted, Feng Zijian, former deputy director of the China Center for Disease Control and Prevention, said during a lecture at Tsinghua University on Tuesday. He said that number could eventually rise to 80% or 90%.

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

Whether out of necessity or caution, local demand for related drugs was already increasing.

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

Looking ahead, it’s pretty clear that China’s Covid policy is near a turning point, said Bruce Pang, JLL’s chief economist and research director for Greater China.

As of Wednesday, negative virus tests will no longer be required for travel within China, while a large number of people usually travel around the upcoming Lunar New Year holiday, he said. That means there could be a surge in Covid infections and China’s policy will never go down, Pang said.

Chinese travel booking site said that after the easing of domestic travel guidelines, searches for plane tickets for the Lunar New Year, which falls in late January 2023, rose to a three-year high.

No full reopening yet

Health authorities emphasized on Wednesday that the latest changes do not imply a full reopening. The quarantine period for international travelers has not been reduced 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 wanting to dine in restaurants still need to show a negative virus test from the past two days.

However, the virus test results are taking longer to process due to an increase in positive cases, local Beijing media reported on Wednesday, citing an employee of a virus testing company. Because virus tests are conducted in groups of 10, the machine must process additional tests if one person’s result comes back positive, the report said.

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

“A sooner-than-expected reopening would put more pressure on near-term growth, but a moderate upside risk to our full-year 2023 GDP growth forecast,” the analysts said.

They expect any initial reopening will weigh on the economy “due to rising infections, a temporary shortage of workers and mounting supply chain disruptions”.

Goldman forecasts China’s economy to grow 3% this year and 4.5% in 2023.

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