China’s persistent zero-Covid policy is expected to remain in play in 2022 and beyond but when will the world’s second-largest economy finally reopen?
China’s growth slowdown continues to be a headline concern with the World Bank recently forecasting economic outperformance by the rest of Asia in 2022 – the first time since 1990. While there are certain issues with no immediate solutions such as the ongoing property crisis or rising geopolitical tensions, there is one policy fix that would likely catalyze an economic rebound, at least in the short term: a reopening.
China is the last major nation still pursuing restrictive policies to combat Covid-19 with partial or full lockdowns affecting millions of residents from 10 provinces representing one-third of the economy. With Hong Kong already in reopening mode, market watchers are now closely looking for similar signs on the horizon for mainland China.
What say the banks?
Consensus: No Earlier Than Q2
The consensus base call across the board is for Beijing to begin reopening after the first quarter of 2023, at the earliest.
Earlier this month, Goldman Sachs said in a note that the timing for zero-Covid exit after the first quarter could be favored as it follows the Lunar New Year peak travel season and next March’s National People’s Congress session to reshuffle top government officials. Morgan Stanley echoed the second quarter call this week, underlining that zero-Covid had hit income growth and youth unemployment which is in opposition to Beijing’s «common prosperity» goals.
«A reopening will happen, not because the rest of the world is now living with Covid, but because the effects of China’s strict Covid management are now increasingly at odds with its policy objective of achieving common prosperity,» Morgan Stanley explained in a note by analysts led by chief Asia economist Chetan Ahya.
«The government really boxed themselves into the corner of the zero-Covid strategy so to get out of that, it will take some time. Most likely, it will only happen after March 2023,» said UBS strategist Adrian Zuercher in a recent interview with «Bloomberg».
Credit Suisse: Bearish Call
Amongst the most bearish bank calls is from Credit Suisse which extended its forecast range for the start of China's zero-Covid exit to the second half.
«An important near-term impediment to economic growth in China remains, of course, its draconian zero-Covid policy,» said Credit Suisse’s APAC chief investment officer John Woods in a podcast earlier this week, highlighting the low vaccination rate amongst the elderly as a key hurdle. «We continue to expect a reopening only in the second or third quarter of next year.»
