China has 'passed the point of not returning' as Covid infections soar

November 23, 2022: Surging Covid infections across mainland China that are making it harder for the government to achieve zero-Covid, which is reverting to a strict lockdown, Macquarie’s Chief China Economist Larry Hu stated.

In recent days, the daily case count has increased to around or more than 28,000, near levels seen in April in a stringent lockdown in Shanghai, according to Wind Information data. The figures show the last time mainland China experienced only a handful of daily infections was in June after Shanghai eased its restrictions.

The recent Covid wave has affected the southern city of Guangzhou, the capital area of Beijing and a few central parts of China recently, prompting local officials to restrict business and social activity this month.

“China might be passing the point of no comeback, as it’s unlikely achieving zero Covid again without another Shanghai-style hard lockdown,” Hu added in a report on Tuesday. “What policymakers could do is to slow the spread of the virus, i.e., flatten the curve, tightens the Covid controls for the time being.”

Hu pointed to slight changes in government policy and planning this month as signs authorities are preparing to reopen in the coming six to nine months. But he noted that “the road is opening is set to involve lots of back-and-forths.”

Markets have speculated for weeks regarding the timing of China’s departure from its strict zero-Covid policy. The controls have weighed on the economy, which increased while Shanghai was locked down and posted growth of 3% during the first three quarters of the year.

In GDP terms, recently 20% of China’s economy was negatively affecting Covid controls, high of 21.2% documented in mid-April in Shanghai’s lockdown, Nomura’s Chief China Economist Ting Lu added, citing the company’s model.

“Beijing has early signs of willingness to, and it has rolled out a few fine-tuning measures, but the reopens may be a prolonged process with discomfort,” Lu added in a separate report this week.

He said Vietnam’s unwinding its Covid restrictions since last year’s decrease could shed light on the path increased for China. He noted how the Southeast Asian country had “no immediate increase in infections after the pivot” when its GDP rebounded.