Is China about to give up its fight against covid-19? One would think so judging by the recent movements of the markets. Rumors that China had assembled a reopening committee led to a surge in domestic stocks, the offshore yuan and even the price of copper earlier in the month. A social media post that helped spread such an idea was later dubbed the “billion dollar” tweet.
Those market moves have been, if nothing else, a reminder of the costs of China’s “Covid Zero” strategy, which requires massive testing and frequent lockdowns to eradicate the disease. Few policies are so economically damaging that mere rumors about their repeal can create so much wealth so quickly. According to bank Goldman Sachs, a reopening could lift the value of Chinese stocks by 20%, or $2.6 trillion. With China the only major economy still prone to lockdowns, this is the last chance for investors to profit from the rebound caused by a reopening. Those gains often come early and fast, so investors risk jumping the gun.
Optimists point out that China is taking quiet steps to open up more. Its aviation regulator has more than doubled, compared to a year ago, the international flights planned for the coming months. China may shorten the quarantine for arriving travelers and abandon the “switch” that suspends airlines with infected passengers. International sporting events are back. Shanghai, which was eerily silent during the April and May lockdown, will hear the roar of racing cars when Formula 1 returns in April 2023.
China approved in September an inhalable vaccine that is already used in 14 cities. At a private meeting on November 4, a former official with the Centers for Disease Control and Prevention said “substantial changes” in the country’s approach were likely in the next six months, the Reuters news agency reported.
Anyway, if China is preparing to open up and exit its policy, the preparations will be long. First, it will want to suppress small but widespread outbreaks in more than 100 cities, including Guangzhou, the capital of Guangdong, a province with a GDP as large as South Korea’s. Next, you’ll want to keep infections under control over the winter so you don’t overwhelm hospitals. And presumably, he will not make big decisions until the new officials take office at the National People’s Congress, to be held in March.
Before reopening with any confidence, China will need to stockpile antiviral drugs. It will also have to build more intensive care units and, above all, increase the vaccination rate among its older population.
The vaccination rate is an “advance indicator” of the reopening, according to the Citigroup bank. The proportion of people aged 60 and over who have received a booster dose reached 66% at the beginning of the year and then plateaued. Who wonders if they are not waiting for the arrival of more effective national vaccines to resume the immunization campaign.
Chinese officials may also not want to goad seniors into getting another dose before they know reopening is imminent. The protection conferred decreases even in the case of the best vaccines. Therefore, there are certain risks in vaccinating both too early and too little. The percentage of elderly people vaccinated increased to 68.5% in November. If it continues to rise, speculation about the imminence of a reopening will intensify.
The economy could grow between 5.5% and 6% in the event of an orderly reopening, according to the Economist Intelligence Unit, our research and analysis division. Darker scenarios are possible: a chaotic end to the “covid-zero” regime could cause the economy to contract for a quarter, before a recovery kicked in. For that reason, once started, the reopening is likely to show a cautious pace.
While many will be relieved by the loosening of controls, others will be concerned. It will take a coordinated propaganda effort to dispel the stigma attached to the disease today, which means that consumer confidence will rise only slowly. On November 6, vaccinated competitors took part in the Beijing marathon, the first in two years, running 42 kilometers from Tiananmen Square to the Bird’s Nest Olympic Stadium. The road to reopening may be just as arduous.
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Translation: Juan Gabriel López Guix
