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

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

In the last few days, the daily number of cases has climbed to around or above 28,000 — near levels seen in April during a strict shutdown in Shanghai, according to CNBC calculations from Wind Information data. The figures showed that the last time mainland China saw only 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 Beijing and many central parts of China – prompting local officials to tighten restrictions on business and social activities this month.

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

Larry Hu

Macquarie, Chief Economist of China

“China may have already passed the point of no return, as it is unlikely to reach zero Covid again without another Shanghai-style hard lockdown,” Hu said in a report on Tuesday. “What policy makers can do now is to slow down the spread of the virus, i.e. flatten the curve, by tightening the Covid controls for the time being.”

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Hu pointed to minor changes this month in government policy and propaganda as signs that authorities are gearing up for reopening in the next six to nine months. But he noted that “the road to reopening will 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 weighed on the economy, which barely stretched growth while Shanghai was under lockdown, posting growth of just 3% during the first three quarters of the year.

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In GDP terms, nearly 20% of China’s economy has been negatively affected by Covid-19 controls as of Monday, close to the peak of 21.2% recorded in mid-April during Shanghai’s collapse, Nomura’s chief China economist Ting Lu said. , said, referring to the firm’s model.

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

He said that Vietnam’s dismantling of its 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 recovered.

Covid control measures tightened in Beijing

Local authorities in China have faced the difficult task of making Covid measures more targeted while controlling infections.

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As of Monday, about 412 million people were affected by lockdown measures in mainland China, according to Nomura estimates. This is up from 340 million the previous week, the report said.

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

Covid control measures in Beijing alone have tightened since Tuesday.

Authorities announced requirements for more frequent virus testing and ordered more restaurants to suspend in-store dining. More shopping centers have closed, as have large parks. Several apartment complexes were closed.

State media said on Tuesday that the city’s technology-focused Zhongguancun Forum, which was due to kick off this week, will be postponed until next year. The conference was already delayed from September.

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