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China must keep its resolve to ease Covid-19 rules and reopen the economy

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Specifically, regional governments need to avoid arbitrarily closing schools, halting production, blocking roads, imposing “static management” (standstill orders) and prolonging social/mobility restrictions. Media shall play a role in exposing rule violations, with help from the public through whistle-blowing.

All levels of governments need to work together to ensure Covid-19 management does not impede normal social and economic activity.

I see three main implications of the new rules. First, while the announcement falls short of delivering a clear road map to reopening, it has brought the most extensive changes to China’s Covid-19 management since the battle against Omicron. These changes have come as a surprise to the market, judging by the 7.7 per cent rally on the Hang Seng Index and the yuan strengthening by 1.2 per cent against the dollar on the day.

Given maximum bearishness had been priced into many Chinese assets, a mere indication of Covid-19 policy recalibration seems sufficient to get investors to reassess their outlook. If Beijing diligently implements these changes and continues to refine its Covid-19 response, the market bottom could be behind us.

A view of a giant display of stock indexes in Shanghai on October 24. If Beijing continues to refine its Covid-19 response, the market bottom could be behind us. Photo: Reuters

A view of a giant display of stock indexes in Shanghai on October 24. If Beijing continues to refine its Covid-19 response, the market bottom could be behind us. Photo: Reuters

Second, the announcement was less of a surprise to those who foresaw policy adjustments after the party congress. My long-held view has been that Beijing would accelerate the recalibration of its Covid-19 response once the political dust settles.

Some adjustments have occurred in the past few weeks, including Shanghai starting a new vaccine campaign, airlines adding more international routes, and the authorities becoming less demanding on PCR testing for travellers. The latest official announcement confirms that these are not one-off, isolated changes, but part of a concerted strategy to refine China’s pandemic response.

Importantly, these adjustments are made under the banner of the dynamic zero-Covid policy – something that is unlikely to change due to its political significance, until perhaps China declares victory over the pandemic. Hence, investors need to pay more attention to what Beijing does (e.g. refining policy implementation) than what it says (e.g. announcing an end to zero Covid).

Finally, talking is easy, and now Beijing has to deliver. The 20-pronged strategy contains specific and actionable guidance as opposed to vague ideologies, which make implementation difficult at grass-roots levels. The challenge, however, lies in dealing with the inevitable consequence of surging infections and even deaths as administrative controls are relaxed.

How ordinary people in China view the country’s ‘dynamic zero-Covid’ policy

03:08

How ordinary people in China view the country’s ‘dynamic zero-Covid’ policy

China is confronting its most severe outbreak since the Shanghai lockdown, and easing controls will exacerbate the virus spread. How much tolerance Beijing has for a deterioration of conditions before it has to put its foot back on the brake is difficult to tell.

The proper order of actions to manage this risk, I think, should be to shore up medical defence – by increasing vaccination, deploying antiviral drugs and constructing field hospitals – before a significant scaling back of social restrictions.

But even under that sequence of actions, there is no guarantee of a smooth path. China most likely faces a bumpy ride to reopening, and the current outbreak will serve as a critical test of Beijing’s resolve to pursue that path.

Aidan Yao is senior emerging Asia economist at AXA Investment Managers

The news is published by EMEA Tribune & SCMP210520-twitter-verified-cs-70cdee.jpg (1500×750)

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