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China’s Covid lockdowns are having a waning impact on its economy

China's Covid lockdowns are having a waning impact on its economy
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Pictured here are locals on a subway train in Zhengzhou city, Henan province, August 27, 2022, after the municipality said negative nucleic acid test results are no longer needed to ride public transport.

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BEIJING — China’s Covid lockdowns are having an easing impact on the economy for the first time since early October, according to Nomura.

However, analysts at the Bank of Japan warned that the road ahead will be challenging as China appears unprepared for a surge in infections.

On Monday, the negative impact of China’s Covid controls on its economy dropped to 19.3% of China’s total GDP – down from 25.1% a week ago, So said Ting Lu, Nomura’s chief economist, and a team in a report.

Last week’s figure of 25.1% was higher than that during Shanghai’s two-month lockdown in the spring, according to Nomura’s model. In early October, the figure was far lower, close to 4%.

In recent days, local governments have relaxed some virus testing requirements, allowing people in cities like Beijing and Zhengzhou to use public transport without having to show a negative test result.

China does not appear well prepared for a massive wave of Covid infections and it may have to pay for its reluctance to adopt a ‘living with Covid’ approach.

If they test positive for Covid-19, Beijing residents, at least, are increasingly being quarantined at home rather than having to do so at a central facility.

As of Tuesday morning, the city of Beijing said proving a negative Covid test within two or three days is no longer required to enter public areas such as shopping malls. But the level of initial implementation varied.

China has shown signs of this gradually easing its strict Covid controls could be on the way. The country reduced quarantine times Mid November. Last week, a Vice Premier downplayed the severity of the Omicron variant.

China is taking steps toward a cautious reopening

However, the country also reported a Rise in viral infections reached daily highs in the last few weeks. The number of cases has fallen in recent days as mandatory virus testing has eased.

“Ending zero Covid is encouraging and should be fairly positive for markets, but we caution that the road to reopening can be gradual, painful and bumpy,” Nomura analysts said.

“Despite the considerable resources expended on the sluggish ZCS over the past two years, China appears unprepared for a massive wave of Covid infections and may have to pay for its reluctance to embrace ‘life with’ Covid approach.”

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Covid controls vary widely by city and district within China. More restaurants in the city of Guangzhou can resume restaurant dining, while most in Beijing only offer takeout.

Schools in both cities remain largely online.

About 452.5 million people have been affected by the current lockdown measures, although that was down from 528.6 million a week earlier, Nomura analysts said.

While these numbers exceed the populations of many countries, they only reflect about a third of China’s population.

Why China is showing no signs of moving away from its 'zero Covid' strategy

— This story has been updated to reflect that Beijing no longer needs it Proof of a negative covid test within two or three days to enter some public places.

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