BEIJING - Speculation about the fate of China’s Covid Zero policy has reached fever pitch.
After President Xi Jinping defended the strategy in his much-anticipated Communist Party congress address in October, investors were left wondering what comes next as the lockdowns and blanket testing that are the hallmark of Covid Zero continued.
In the absence of a clear outlook on when it will all end, traders have seized on what they see as signs of progress, with an unverified screenshot of mysterious origins claiming China was making detailed plans to reopen stoking a US$450 billion (S$630 billion) rally last week.
The rumours continued into the weekend, ahead of a briefing by China’s National Health Commission, where newfound buzz about a Covid Zero exit plan was punctured by officials saying they were resolutely adhering to the strategy.
With markets continuing to whipsaw, and decoding China’s intentions key to everything from the fortunes of beaten-down domestic stocks to the global economic outlook, we’ve brought together what we know about the controversial strategy going forward:
Has anything changed to suggest China is adjusting its Covid policies?
Since Mr Xi’s speech at the Party congress, there have been some solid indications that Chinese officials have at least started a dialogue about how to ease the more isolationist aspects of Covid Zero.
Officials are debating how they may go about further reducing mandatory hotel quarantine for incoming travellers, Bloomberg News reported last month.
The aviation regulator has also encouraged state-owned carriers to add more flights, and officials are considering scrapping a system that penalises airlines for bringing a certain number of Covid-positive passengers into China.
All of these – while largely at the discussion or planning stage – point to a desire to ease up at the border.
On the vaccine front, German Chancellor Olaf Scholz gave the first indication that China may be willing to roll out more effective, foreign Covid-19 shots – seen by many as key to being able to reopen without a mass wave of deaths – when he said on Friday the country had agreed to make BioNTech’s vaccine available to foreigners living there. Mr Scholz said it was a potential first step toward wider adoption in the world’s second-largest economy.
BioNTech confirmed Monday that it’s in “positive” discussions with Chinese authorities, though it was too early to give any details on the expat vaccination programme, or any wider approval in China for its Covid-19 shot.
So is China getting ready to end Covid Zero – or just tweak it?
That’s unclear. While relaxing border curbs could help reduce China’s isolation from the rest of the world, it won’t address the more economically-damaging aspects of Covid Zero.
It is, however, hard to find concrete signs of China easing its internal Covid-19 playbook of lockdowns, curbs on domestic travel and frequent mass testing.
While Beijing has ramped up its directive for local officials to make Covid Zero less obtrusive, that seems to have mainly resulted in restrictions going under the radar.
Lockdowns and other curbs like shutting schools are more covert now. A city may be locked down incrementally, neighbourhood-by-neighbourhood, to avoid making a broad announcement, and some residents have reported only finding out they were locked down when they got home.
If anything, lockdowns actually increased last week, according to an index compiled by Japanese bank Nomura. Just over 10 per cent of China’s total gross domestic product was under some form of lockdown as of Thursday, Nomura analysts wrote, up from 9.5 per cent last Monday.
A seven-day lockdown was ordered around the world’s biggest iPhone factory in Zhengzhou, central China, spurring Apple to cut its outlook for shipments of the devices, and a district of southern manufacturing powerhouse, Guangzhou, will be locked down until Friday.
Parts of the north-west have been locked down for months, and a vast brick-and-mortar testing network has been built in some cities.
What about that unverified screenshot?
Disseminated by market commentators and traders via social media, the screenshot claimed that a member of China’s top leadership met with experts – translated by many as a “committee” – to discuss a detailed plan for reopening by March next year. It was unclear who wrote the screenshot or where it had come from. There was no letterhead, watermark or other identifying features.
Despite this, it was seized on, spurring a rally in Chinese stocks that are trading near multi-year lows, thanks in part to the economic drag of Covid Zero.
A week on, no media organisation – Chinese or international – has been able to verify the screenshot, and when asked about it at a briefing on Nov 1, a spokesman for China’s foreign ministry said he was unaware of any Covid-19 Zero exit committee.
Similar speculative reports since have also failed to stack up..
What are Chinese officials and state media actually saying about Covid Zero now?
What they’ve always been saying: Officials are sticking to the script, with no cracks in the party line that Covid Zero is the correct approach for China and the government will implement it “unswervingly.”
Investors have been trying very hard to read between the lines of how state media and the authorities talk about Covid-19, jumping on what seem to be milder descriptions of the virus as representing a change in the propaganda. While a rhetorical shift is definitely a key indicator to watch for, the recent instances seized on are weak.
For example, some traders passed around an article posted on Party mouthpiece The People’s Daily’s health app in which the China CDC’s chief epidemiologist Wu Zunyou appeared to downplay the risk of contracting long Covid. But those comments were made in October, and the article merely conveyed the observations of a Hong Kong-based expert that the definition of long Covid is still in doubt.
Similarly, much was made of the local health authority in Henan province describing Covid-19 as a “self-limiting” disease on Oct 31, meaning it can resolve without treatment. But as analysts at Australia & New Zealand Banking Group, led by Greater China chief economist Raymond Yeung, wrote in a note on Monday, the phrase is not new, has been used before in China and is irrelevant for the parameters that Beijing focuses on.
“It means the immune system can develop antibodies to combat the virus,” the analysts wrote. “However, policy makers are still concerned about the impact of long Covid and the burden on medical facilities.”
Why the reluctance to pivot despite vaccines and antiviral drugs to treat Covid-19?
Much has been made of the fact that China’s vaccines are not as effective as Western mRNA shots and that may account for its reluctance to exit Covid Zero.
But the country’s homegrown vaccines are highly effective in preventing fatalities. What’s likelier to be the issue is that even with inoculations and antiviral pills like Pfizer’s Paxlovid – which China is producing domestically – there still remains a small chance of dying from Covid.
In China’s vast population, that could amount to millions of deaths, which would be problematic for Mr Xi. He’s held up China’s vastly lower Covid-19 death toll as supreme evidence of the policy’s rectitude, especially compared with the United States.
There has been some news on the vaccine front, with Friday’s BioNTech development preceded by the approval and rollout in some cities of a nasal vaccine from Chinese company CanSino Inc.
But despite that, the country’s vaccination rate has plateaued, with rates among the elderly still lower than in other countries. Their fears are less about how the vaccine is administered and more around whether it can have adverse effects if taken when you have another medical condition, as many older people tend to.
It’s also possible that China’s top leaders may simply be reluctant to allow the virus to spread freely until the risk of death drops further, either through the emergence of an even milder virus variant than Omicron, or the development of even more effective vaccines and antivirals.
What needs to happen before China starts to exit Covid Zero?
Experts surveyed by Bloomberg are looking for a number of key developments, some of them also laid out by Chinese officials. They include:
1. A real vaccination push, especially among the elderly and potentially using mandates.
2. The concerted introduction of mRNA shots.
3. Improved hospital capacity, including downgrading Covid-19 to an illness you don’t necessarily need to be hospitalised for.
4. Easing the border regime.
5. Backing away from lockdowns and other Covid Zero mitigation measures.
6. Political rhetoric will have to change in clear terms.
Having committed so much of his legacy to a war-like campaign again Covid-19, Xi will need to signal in no uncertain terms that victory is in sight. BLOOMBERG