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

BEIJING – Rising Covid infections in mainland China are making it more difficult for the government to achieve zero Covid without resorting to a hard lockdown, Macquarie’s Chief China Economist Larry Hu said.

In recent days, the daily number of cases has risen to about or more than 28,000 — close to levels seen in April during a strict lockdown in Shanghai, according to CNBC calculations from 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 has hit the southern city of Guangzhou, Beijing’s capital and many central parts of China, prompting local officials to tighten restrictions on business and social activities this month.

The road to reopening will involve 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 reach zero Covid again without another hard Shanghai-style lockdown,” Hu said in a report Tuesday. “What policymakers could do now is slow the spread of the virus, or flatten the curve, by tightening Covid controls for the time being.”

Hu pointed to minor changes in government policy and propaganda this month as authorities prepare 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 exit from its strict zero-Covid policy. The controls have weighed on the economy, which was barely able to sustain growth while Shanghai was locked down, recording growth of just 3% in the first three quarters of the year.

In GDP terms, nearly 20% of China’s economy was negatively impacted by Covid controls as of Monday, close to the high of 21.2% recorded in mid-April during Shanghai’s lockdown, said Nomura’s Chief China Economist Ting Lu, adding that referring to the model of the company.

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

He said Vietnam’s easing 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 post-pivot rise in infections” as GDP recovered.

Covid controls tighten in Beijing

Local authorities in China face the difficult task of trying to make Covid measures more targeted while keeping infections under control.

Some 412 million people were affected by lockdown measures in mainland China as of Monday, according to Nomura estimates. That’s more than 340 million last week, the report said.

The Nomura analysts noted that many lockdowns or checks are carried out 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 been tightened since Tuesday.

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

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

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