BEIJING - China’s reopening after three years of tough zero-Covid restrictions is a lifeline for its battered economy, but it could take until April 2023 to see any signs of growth.
Economists say the surge in Covid-19 cases across the country, after many pandemic restrictions were rolled back on Dec 7, is causing a health crisis that could lead to widespread disruption, with expectations that the economy will contract this quarter and the next.
Streets in cities, including Beijing, have become quiet as residents get sick or stay home for fear of getting infected.
The Chinese capital was one of the first to experience a wave, with subway passenger traffic dropping to a fifth of pre-pandemic levels at one point in December, according to analysis from research firm Capital Economics.
Other cities will likely also experience a similar slump in activity in the coming weeks, the firm’s economists Mark Williams and Julian Evans-Pritchard said in a research note on Dec 15.
“For the economy, reopening has so far been entirely negative... activity has been depressed for most of the past year as fear of getting forced into quarantine has kept people at home. Fear of quarantine has now given way to fear of infection, and the economic outcome is even worse,” said the economists, pointing out that economic disruptions could intensify in the coming weeks.
China’s chief epidemiologist Wu Zunyou said on Saturday that China could experience three Covid-19 waves over the next three months, while other Chinese experts predict that as much as 80 per cent to 90 per cent of the population could eventually be infected.
The concern is that the health crisis sparked by the surge in cases could overwhelm the healthcare system, dampening consumption and production in the process, said Mr Bo Zhuang, senior sovereign analyst at Loomis Sayles Investments Asia in Singapore.
“Policymakers aren’t likely to enforce widespread lockdowns, but factory production may experience some supply disruption. It would not surprise me to see growth rates as low as zero over the next three months, down from the current pace of around 2 per cent year over year,” Mr Zhuang said in a research note on Tuesday.
Economic recovery will hinge on achieving normality, restoring household confidence and boosting domestic consumption, but this will take months to achieve.
The economy is already in the doldrums, with latest indicators showing that retail sales contracted 5.9 per cent in November, largely attributed to pandemic lockdowns.
With the virus spreading freely, investment bank Natixis senior economist Gary Ng said it will take time for consumers to live with Covid-19, pointing out that this could mean that any meaningful economic rebound will likely come in the second quarter of 2023.
At the Central Economic Work Conference last week in Beijing, an annual top-level meeting that sets the economic agenda for the coming year, Beijing signalled that restoring domestic consumption will be a key priority for 2023.
With China transitioning to living with Covid-19, Beijing will be focused on boosting economic growth, economists say.
Mr Ng told The Straits Times that Beijing could boost consumption by increasing subsidies on vehicles or green home appliances in rural areas, or hand out consumption vouchers.
But he cautioned that room for stimulus is limited because the government is still struggling with the burden of unsustainable Covid-19-related spending.
“At the end of the day, it is about whether the population can put Covid-19 behind it,” he said, adding that government measures, while providing support, cannot replace a full normalisation of economic activity.
