China’s relaxation of ‘zero-Covid’ controls comes at a crucial time for Hong Kong property

Hong Kong’s stock market is not for the faint-hearted. By the end of October, the Hang Seng Index was down a staggering 37 per cent since the start of this year. Yet, it has shot up almost 35 per cent since then, still leaving the gauge 35 per cent below its peak in February 2021.

The dramatic rally stems from the growing momentum behind China’s relaxation of its draconian Covid-19 restrictions, allowing people with asymptomatic or mild cases to isolate at home and reducing the frequency and scope of mass testing requirements.

The speed and scale of China’s shift away from its zero-tolerance approach to the virus has come as a surprise, amplifying the positive impact on sentiment. While Hong Kong has unwound some of its own strict “zero-Covid” rules, the closure of the border with the mainland continues to inflict severe damage on the city’s economy. As the gateway to China, Hong Kong’s prospects hinge crucially on a full reopening of the border.

Beijing’s dismantling of its stringent controls could be the catalyst for an improvement in the outlook for Hong Kong’s property sector, which was hit hard by pandemic-related curbs. It has suffered a succession of shocks in recent years that have cast doubt over Hong Kong’s future as a global financial centre.

The question is whether China’s pivot away from “zero Covid” ends up doing more harm than good. China is ill-prepared to open up in view of its under-vaccinated elderly population and ill-equipped healthcare system.

Having suffered its own uncontrolled outbreak earlier this year, the last thing Hong Kong needs is a disorderly exit from zero Covid that forces Beijing to reimpose restrictions, keeping the border shut indefinitely.