Financial markets are betting on the end of China’s “zero-covid” policy

Is China about to give up its fight against covid-19? Judging by recent market movements, you might think so. Rumors that China had assembled a reopening committee inspired a big rally in the country’s stocks, the offshore yuan and even the price of copper earlier this month. A social media post that helped spread the idea was later dubbed the “trillion dollar” tweet.

If nothing else, the market moves served as a reminder of the costs of China’s “zero-covid” strategy, which requires mass testing and frequent lockdowns to eradicate the disease. Few policies are so economically damaging that mere rumors of their repeal can create so much wealth so quickly. A reopening could boost the value of Chinese stocks by 20% or $2.6 billion, according to Goldman Sachs, a bank. Because China is the only major economy still prone to shutdowns, this is the last opportunity for investors to take advantage of a reopening rally. These tend to happen early and quickly, which is why investors are likely to take the plunge.

Optimists point out that China is taking modest steps to become more open. Its aviation regulator has more than doubled international flights scheduled for the next few months, compared to a year ago. China could shorten the quarantine for inbound travelers and drop the “circuit breaker” that suspends airlines bringing in infected passengers. International sporting events are back. Shanghai, eerily quiet during its confinement in April and May, will hear the roar of racing cars when Formula 1 returns in April 2023.

In September, China approved an inhalable vaccine that is now used in 14 cities. At a private conference on Nov. 4, a former official with China’s Center for Disease Control and Prevention said “substantial changes” in the country’s approach were likely in the next six months, according to Reuters, an agency Press.

But if China is about to exit, the preparations will be long. He will first want to quell small but widespread outbreaks in more than 100 cities, including Guangzhou, the capital of Guangdong, a province with a GDP as large as South Korea’s. He will then want to limit infections during the winter, so as not to overload his hospitals. And he is unlikely to make big decisions until new officials are installed in the National People’s Congress in March.

Before it can reopen with confidence, China will also need to stockpile antiviral drugs. It will also have to build more intensive care units and, above all, increase the vaccination rate among its elderly.

The vaccination rate is a “leading indicator” of reopening, believes Citigroup, another bank. The share of people aged 60 or over who received a booster shot reached 66% at the start of the year, before sinking. Some wonder if China is waiting for more effective local injections before renewing its vaccination campaign.

It’s also possible that Chinese officials don’t want to urge the elderly to get another shot until they know the reopening is underway. The protection conferred by even the best shots diminishes. So there are dangers in vaccinating people too early or too little. It turns out that the percentage of seniors boosted increased to 68.5% in November. If it continues to climb, speculation of a reopening will intensify.

The economy could grow by 5.5-6% in the event of an orderly reopening, according to the Economist Intelligence Unit, our sister company. Darker scenarios are possible: a chaotic end to the “zero-covid” regime could cause the economy to contract for a quarter, before a subsequent recovery. For this reason, whenever it begins, the pace of reopening will likely be cautious.

Although many will feel relief as the controls are loosened, others will be worried. It will take more than an article in the People’s Daily to dispel the stigma the disease now bears, meaning consumer confidence could slowly rise. On Nov. 6, vaccinated competitors took part in the Beijing Marathon, the first in two years, running more than 26 miles from Tiananmen Square to the Olympic Stadium. The road to reopening could be just as arduous.

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