China must brace for ‘big blow’ after lifting of zero-Covid policy, economist warns
- Policymakers’ attempts to boost China’s economy while it remains constrained by the disruptive zero-Covid policy are deemed ‘powerless’
- Consensus is that lockdowns, mass screenings and other controls will remain in place for a few more months, but then real economic recovery could still be curtailed by rising infections
China’s economic growth next year appears to entirely hinge on a potential exit from its zero-Covid policy, and even if such a shift occurs, more pain is inevitable before the real recovery, according to economists.
Even as stringent lockdowns, mass screenings and quarantine controls – hallmarks of zero-Covid – continue to weigh on people’s livelihoods while depleting local governments’ finances, most economists do not expect China to fully reopen until after the completion of its political reshuffling in March.
“In the face of the zero-Covid policy, all of the other policies [to boost the economy] are powerless,” said Lu Ting, chief China economist at Nomura, who projects a 4.3 per cent growth rate for the Chinese economy in 2023.
But Lu cautioned against blindly expecting a rapid economic recovery even if China does fully reopen towards the end of the first quarter.
“When the infection number quickly soars, it will be a big blow to the healthcare system and the whole society,” Lu warned. “Large-scale infections will have a negative impact across consumption, production and logistics.”
He added that the biggest benefit that will be brought by a reopening – a recovery of consumption, especially in the services sector – might then only occur in the third or fourth quarter of next year.
Economists from Goldman Sachs have placed a 60 per cent subjective probability on China reopening in the second quarter, with a 30 per cent chance for an earlier exit.