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

Beijing’s business district lay almost empty during rush hour on November 22, 2022 after local authorities urged people to work from home amid many measures to contain the recent Covid outbreak.

Kevin Frayer | News from Getty Images | Getty Images

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

In recent days, the daily number of cases has risen to about 28,000 or more — near the level recorded during a strict lockdown in Shanghai in April, according to CNBC calculations from Wind Information data. Figures showed mainland China last saw just a handful of daily infections in June, shortly after Shanghai eased restrictions.

The latest wave of Covid 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 will be associated with a lot of back and forth.

Larry Hu

China’s chief economist Macquarie

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

Hu pointed to minor changes in government policy and propaganda this month as signs show authorities are preparing to reopen 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 move away from its strict zero-Covid policy. The controls have weighed on the economy, which has struggled to sustain growth during the lockdown in Shanghai, posting just 3% growth for the first three quarters of the year.

In terms of GDP, nearly 20% of China’s economy was negatively affected by the Covid controls on Monday, near the peak of 21.2% recorded during Shanghai’s lockdown in mid-April, said Ting Lu, China’s chief economist at Nomura , citing the company’s model.

“Beijing has recently shown early signs of readiness to reopen and introduced some fine-tuning measures, but reopening may be a lengthy process with unease,” Lu said in a separate report this week.

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

Covid controls tighten in Beijing

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

As of Monday, about 412 million people in mainland China have been affected by lockdown measures, Nomura estimates. That’s up from 340 million in the previous week, the report said.

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

In Beijing alone, Covid controls have tightened since Tuesday.

Authorities announced requirements for more frequent virus testing and ordered more restaurants to suspend in-store dining. More malls have closed, as have major parks. Several residential complexes have been cordoned off.

State media said on Tuesday that the city’s tech-focused Zhongguancun Forum, which was scheduled to start this week, will be postponed until next year. The conference had already been postponed from September.

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