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

China may have 'passed the point of no return' as Covid infections skyrocket
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BEIJING — Rising Covid infections in mainland China are making it harder for the government to reach zero Covid without returning to a hard lockdown, said Larry Hu, Macquarie’s chief economist China.

In recent days, the daily case count has risen to around or more than 28,000 — near the level recorded during a strict lockdown in Shanghai in April, according to CNBC calculations from Wind Information data. Figures showed the last time mainland China recorded just a handful of daily infections was in June, just after Shanghai eased its restrictions.

The latest wave of Covid has hit the southern city of Guangzhou, the capital Beijing and many central parts of China – prompting local officials to tighten restrictions on business and social activities this month.

The road to reopening will be associated with 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 return to zero Covid without another Shanghai-style hard lockdown,” Hu said in a report Tuesday. “What policymakers could do now is slow the spread of the virus, so flatten the curve by tightening Covid controls for now.”

Hu pointed to minor changes this month government policy and propaganda as a sign that authorities are preparing 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 move away from its strict zero-Covid policy. The controls have weighed on the economy, which has shown little growth while Shanghai has been in lockdown, posting just 3% growth for the first three quarters of the year.

We believe China will fully reopen by Q3 2023, says UBS

In terms of GDP, nearly 20% of China’s economy was negatively affected by the Covid controls on Monday, near the peak of 21.2% recorded during Shanghai’s lockdown in mid-April, said Ting Lu, China’s chief economist at Nomura , citing the company’s model.

“Beijing has recently shown early signs of readiness to reopen and introduced some fine-tuning measures, but reopening may be a lengthy process with unease,” Lu said in a separate report this week.

He said Vietnam’s lifting of its Covid restrictions since autumn last year could shed light on the way forward for China. He noted that the Southeast Asian country saw “no immediate surge in infections after the pivot point” while its GDP recovered.

Covid controls tighten in Beijing

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