What to expect next as China relaxes Covid controls

BEIJING — As mainland China relaxes many of its stringent Covid controls, analysts point out the country is far from a quick return to a pre-pandemic situation.

National authorities announced sweeping changes on Wednesday to make it easier to travel domestically, keep businesses operating and allow Covid patients to quarantine at home.

"These measures are much welcome for an economy that has been severely battered this year," Nomura's chief China economist Ting Lu and a team said in a report.

"However, we would also caution that the road to full reopening may still be gradual, painful and bumpy," they said. The country does not appear well prepared for a massive wave of infections, and the infection rate of 0.13% leaves the country far below that needed for herd immunity, according to the report.

Mainland China's daily Covid infections, mostly asymptomatic, surged to a record high above 40,000 in late November. The number has since tapered off as cities reduced virus testing requirements.

The path forward for China to reopen may take a few months, with a surge in infections likely, according to a Goldman Sachs report on Dec. 4.

"With most of the population uninfected before reopening, lower elderly vaccination rates than many other economies, and cultural similarities, we think Hong Kong and Taiwan's reopenings are most relevant for Mainland China," said chief China economist Hui Shan and a team.

"Their experiences suggest that cases are likely to skyrocket upon reopening and linger for a while, a high elderly vaccination rate is key to a safe reopening, and mobility declines sharply as cases rise," the Goldman report said.

In the last two months, Taiwan no longer required international travelers to quarantine upon arrival, and said people did not have to wear masks outdoors.

Last week, mainland Chinese authorities announced another push to vaccinate the country's elderly.

In the near term, about 60% of people may get infected, regardless of how policy is adjusted, Feng Zijian, former deputy director of China's Center for Disease Control and Prevention, said Tuesday during a Tsinghua University talk. He said that figure could ultimately climb to 80% or 90%.

New measures released by the health commission Thursday focused on how to treat Covid patients at home, and included a list of medicines.

Whether out of necessity or precaution, local demand for related medication was already on the rise.

JD Health said online sales have climbed for cold medicines, fever-reducing drugs and related products. The company said its latest data showed transaction volume for the week ended Monday surged by 18 times versus October.

Looking ahead, it's pretty clear that China's Covid policy is about to cross a turning point, said Bruce Pang, chief economist and head of research for Greater China at JLL.

As of Wednesday, negative virus tests are no longer needed to travel within China, while large numbers of people typically travel around the upcoming Lunar New Year holiday, he said. That means there may be a surge in Covid infections, and China's policy will never go back, Pang said.

Chinese travel booking site Trip.com said after the relaxation in domestic travel policies, flight ticket searches for the Lunar New Year, which falls in late January 2023, surged to the highest in three years.

Health authorities emphasized Wednesday the latest changes do not imply a full reopening. There was no reduction in quarantine time for international travelers, and the measures include instances in which a negative virus test is still required.

At a local level, Beijing city said Wednesday evening that people wanting to dine in at restaurants would still need to show a negative virus test from within the last two days.

But it's taking longer to process virus test results due to an increase in positive cases, local Beijing media reported Wednesday, citing a virus testing firm worker. Since virus tests are done in batches of 10, if one person's result turns out positive, the machine needs to process additional tests, the report said.

Goldman Sachs analysts expect China's reopening — defined as a shift away from lockdowns — to come in the second quarter of 2023, according to a separate report on Wednesday.

"An earlier-than-expected reopening would add more downward pressure to near-term growth but moderate upside risk to our 2023 full-year GDP growth forecast," the analysts said.

They expect any initial reopening to create a drag on the economy "due to surging infections, a temporary shortage of labor supply and increased supply chain disruptions."

Goldman forecasts 3% growth for China's economy this year, and 4.5% in 2023.