Mainland markets had time to take account of the Politburo’s quarterly economic meeting before closing for the Labour Day holiday. Overall the outcome seemed contradictory, maintaining a dynamic “zero-Covid” policy, which is negative for expansion, while sticking to an ambitious “around 5.5 per cent” gross domestic product growth target. Investors could have taken it either way. But immediate market sentiment proved positive. The statement issued after the meeting said: “The pandemic has to be contained, the economy should be stabilised, and the development should ensure security.” Given that the zero-Covid goal remains paramount, the test will be how China can sustain economic growth. Lockdowns in Shanghai and other large cities have already taken a toll on retail sales, production and logistics, reflected in slumps to more than two-year lows in activity in the manufacturing and services sectors. Externally, the war in Ukraine has driven up prices of commodities from iron ore to soybeans, while tensions with Washington and Brussels blur the export outlook. Hong Kong’s experience shows that despite a low mortality rate, the high transmissibility of the Omicron variant of the virus poses the threat of an extremely high death toll if it were to spread across China, endangering stability and long-term growth. So even in the face of a sharp downturn, President Xi Jinping stressed the need to keep the zero-Covid policy. The leadership apparently believes it can sustain growth by focusing on a range of tools such as infrastructure investment, particularly in projects critical to national security. But these measures will take time. Beijing outbreak ramps up pressure on China’s economic momentum The Politburo vowed to speed up the implementation of existing tax-cut and supportive policies, as well as the use of new monetary policy tools, while also refining the regulatory regime. It said the leadership would respond to the concerns of foreign investors about fresh waves of coronavirus outbreaks. In the short term, the focus will be on how to resolve the logistics bottleneck, which may involve some kind of relaxation within the overall zero-Covid policy. The Politburo also hinted that there will be some policy easing of the regulatory crackdown on tech platforms and the property sector. The markets may have reacted positively, but it could pay to temper optimism. Beijing may have shifted the focus from regulatory control towards support, but it will not give up its bottom lines. The priority remains to remove any risks that may prove systemic, such as uncontrolled expansion of the platform economy and the property bubble. These sectors may be given more breathing room, but any relaxation is likely to involve striking a balance between meeting the threat posed by Omicron and the need to support the economy.