China may end zero-Covid-19 policy earlier than expected in April, says Goldman Sachs

People holding white sheets of paper to protest hardcore Covid-19 restrictions as an outbreak continues in Beijing. PHOTO: REUTERS

NEW YORK – Goldman Sachs has said China may end its zero-Covid-19 policy before April – earlier than widely expected – with some chance of a “disorderly” exit, amid tighter virus controls that have prompted protests across the country.

The bank forecasts a 30 per cent probability of China reopening before the second quarter of 2023, chief China economist Hui Shan wrote in a note late on Sunday.

“The central government may soon need to choose between more lockdowns and more Covid-19 outbreaks,” she wrote.

Local governments have struggled to “balance quickly” controlling the spread of the virus while obeying recent measures mandating a more targeted approach.

The economy has been roiled by zero-Covid-19, with increasingly strict controls curbing peoples’ mobility and business activity, undermining economic growth. The curbs prompted demonstrations in major cities, including Shanghai and Beijing, over the weekend.

Economists at Commerzbank and elsewhere have cited “growing discontent” over zero-Covid-19 as a sign of the pressures facing the authorities.

“The current situation highlights the challenge that China faces in maintaining zero-Covid-19 while attempting to implement less stringent measures,” Commerzbank economists wrote in a note on Monday.

Chinese stocks were the worst performers in Asia on Monday as investors trimmed holdings, concerned that the protests are creating more uncertainty for the nation’s path towards reopening.

A recent 20-point playbook unveiled by the government seemed aimed at easing some of the strictest controls in China, but many cities have continued to lock down communities to control the virus as cases surged to record levels.

Figuring out how to quell the outbreaks while also implementing the new measures is “the source of confusion”, said Dr Larry Hu, head of China economics at Macquarie Group.

“Without clear guidance from the top, local officials are inclined to play safe by sticking to the existing zero-Covid-19 stance,” he said, adding that “it upset many people” who expected more loosening.

Hang Seng Bank chief China economist Dan Wang said it is “unlikely” that there will be a gradual reopening given the quick rise in cases.

A “rapid or a reckless reopening” will be worse for China’s growth, she said in a Bloomberg TV interview on Monday.

If the Covid-19 policy is relaxed too quickly, there is a risk of a jump in deaths, as was the case in Beijing recently, she said. “That could result in a very awkward position for a lot of local governments when it comes to the priorities in their industrial reopening.”

While there is a chance of an earlier reopening, Goldman still sees a second-quarter exit from zero-Covid-19 as having the highest chance of happening – around 60 per cent, Goldman’s Dr Hui wrote. BLOOMBERG

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