China may have “passed the point of no return” as Covid infections rise

China may have “passed the point of no return” as Covid infections rise

China may have “passed the point of no return” as Covid infections rise

BEIJING – Rising Covid infections across mainland China are making it harder for authorities to achieve zero Covid without returning to a hard lockdown, Macquarie’s China chief economist Larry Hu said.

In recent days, the daily number of cases has risen to around or more than 28,000 — close to levels seen in April during a strict shutdown in Shanghai, according to CNBC calculations of wind information data. The figures showed that the last time mainland China saw just a handful of daily infections was in June, shortly after Shanghai eased restrictions.

The latest wave of Covid-19 has hit the southern city of Guangzhou, the capital Beijing and many central parts of China – prompting local officials to tighten restrictions on business and social activity this month.

The road to reopening is going to involve a lot of back and forth.

Larry Hu

Chief Economist in China, Macquarie

“China may have already passed the point of no return, as it is unlikely to achieve zero Covid again without another Shanghai-style hard lockdown,” Hu said in a report on Tuesday. “What the politicians can do now is to slow down the spread of the virus, i.e. the flat curve, by tightening the Covid controls until further notice.”

Hu pointed to small changes this month in government policy and propaganda as signs that authorities are preparing 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 been speculating 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 under lockdown and has grown by just 3% in the first three quarters of the year.

We believe China will fully reopen by the third quarter of 2023, says UBS

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

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

He said that Vietnam’s lifting of Covid restrictions since autumn last year could shed light on the way forward for China. He noted how the Southeast Asian country saw “no immediate increase in infections after the pivot” while GDP rebounded.

Covid control is being tightened in Beijing

Local authorities in China have been faced with the difficult task of trying to make Covid measures more targeted, while also controlling infections.

As of Monday, some 412 million people were affected by lockdown measures in mainland China, according to Nomura estimates. That is up from 340 million the week before, the report says.

Why China shows no signs of retreating from its 'zero-Covid' strategy

The Nomura analysts noted that many shutdowns or controls are implemented without public announcement. “We believe [the southwestern municipality of] Chongqing is currently experiencing the most severe local lockdown in China, based on our observation of a range of mobility metrics, the report said.

Covid controls in Beijing alone have been tightened since Tuesday.

The authorities announced requirements for more frequent virus testing, and ordered several restaurants to stop serving in stores. Several shopping centers have closed, as have large parks. Various apartment complexes are locked down.

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 was already delayed from September.

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