China’s Covid pivot may be damned by faint praise

Pandemic prevention workers in protective suits walk in a street as coronavirus disease (COVID-19) outbreaks continue in Beijing, December 4, 2022. REUTERS/Thomas Peter

HONG KONG, Dec 6 (Reuters Breakingviews) - Beijing’s abandonment of its draconian zero-Covid policy has reassured markets and calmed protesters, but it may not do much for the economy. It is one thing to stop harsh lockdowns and ease travel restrictions. Persuading households that hoarded $1.9 trillion this year to spend will be far more difficult.

Sun Chunlan, China’s top pandemic official, suggested the central government was backing off on President Xi Jinping’s controversial “dynamic zero-Covid” policy last week, and Xi echoed that to foreign visitors including European Council President Charles Michel, according to a Reuters report citing unnamed EU officials. Municipalities have already started relaxing lockdowns and easing up on testing. The blue-chip CSI 300 Index (.CSI300) jumped 1.7% in the Monday morning session, while Hong Kong's battered Hang Seng Index (.HSI) climbed 3.5%.

Cities desperately want budgetary relief from expensive testing and quarantine enforcement mandates, and to revive business investment and consumption. Retail sales hit a five-month low in October, falling back into contraction; property – which accounts for a quarter of economic activity – has seen sales plunge 26% in the first 10 months. The question is how much of a boost combined efforts to relax zero-Covid and prop up the real estate sector will have.

In the most optimistic scenario, the reopening is swift and the medical system manages to digest the inevitable explosion of new cases without a spike in deaths. Citizens would surge into restaurants and theaters, buy train tickets to visit family and friends, and jet off to vacation abroad, relieving tourism-dependent economies like Thailand. They would also step back into the housing market.

This is unlikely. Thanks to lockdowns and financial volatility, citizens added over 13 trillion yuan to their savings in 2022 in an economy with one of the world’s highest savings rates. Household deposits totaled nearly $17 trillion by October.

Were urban households to draw down half of the excess savings accumulated since 2020, Standard Chartered analysts estimate it would add one percentage point to growth in 2023. A property revival would be even more statistically beneficial. Yet a shopping boom seems unlikely, especially if China experiences a major outbreak as a result of looser controls. As for real estate, the government seems more focused on minimising defaults than reviving prices. Chinese people might take some time to end self-imposed austerity.

Chinese people’s savings have risen faster during the pandemic

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Updates to add chart. Refiles to add dropped word in third paragraph, first sentence.)


Chinese President Xi Jinping blamed mass protests in Chinese cities on youth frustrated by years of the Covid-19 pandemic, Reuters reported on Dec. 2 citing unnamed European Union officials. Xi added that the Omicron variant of the virus is less deadly, paving the way for easing draconian policies intended to eliminate the disease inside the country.

Editing by Pete Sweeney and Thomas Shum

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Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.