Amid COVID protests in China, COVID-zero phaseout could be ‘disorderly’, Goldman Sachs says
China’s soaring number of COVID cases and the escalation of lockdown measures, which sparked rare public protests over the weekend, underscore the risk of an unplanned and chaotic exit from the country’s tough COVID-zero policy, Goldman Sachs predicts.
A deadly apartment fire in the Chinese city of Ürümqi has sparked nationwide protests against China’s COVID controls, with videos and reports of demonstrations in cities including Beijing, Shanghai, Wuhan and Chengdu.
In a note published Sunday, Hui Shan, China’s chief Goldman economist, said the investment bank’s reopening prediction now includes “some chance of a forced and disorderly exit” from the mainland’s COVID-zero policy, which aims to eliminate any case to eliminate the virus.
Goldman puts the probability of China reopening before the second quarter of 2023 at 30%, the same chances it forecast earlier this month. On November 11, China announced measures that eased some restrictions slightly, including reducing the combined length of hotel and home quarantine from 10 days to eight days for inbound travelers. The move raised hopes among analysts that Beijing was ready to launch a long-awaited rollback of COVID measures, including strict quarantines on incoming flights, lockdowns and mass testing.
But growing public dissatisfaction with China’s COVID measures combined with a record number of cases could instead lead to uncertainty and mixed messages about the government’s approach. “The central government may soon have to choose between more lockdowns and more COVID outbreaks,” Hui wrote in her Sunday note.
A “forced” exit from COVID-zero could mean Chinese officials scaling back COVID controls before the country is ready to deal with the inevitable surge in cases. Rising case numbers would take a toll on the economy as outbreaks disrupt manufacturing and trade, strain public health services and encourage people to stay at home – in addition to a rise in serious illness and deaths.
Goldman predicts the disruption could add further “downside risk” to its original forecast for China’s fourth-quarter GDP. The U.S. investment bank had previously forecast 3% year-on-year growth for 2022, well below Beijing’s target of 5.5%.
Hong Kong’s Hang Seng Index opened 3% lower Monday morning, while Shanghai’s SSE Composite Index opened 1.5% lower.
COVID frustrations
China on Monday reported 40,052 new COVID infections, setting a new daily record for the fifth straight day.
Government officials are hastily imposing COVID control measures like social distancing, mass testing and lockdowns to control outbreaks. Nomura economists now estimate that an area responsible for a fifth of China’s GDP is in some form of lockdown.
Confined residents have protested against COVID measures. Last week, migrant workers clashed with security guards at a large Foxconn plant in Zhengzhou – China’s “iPhone City” – over frustration over COVID controls, fears of infection and unpaid wages. Foxconn offered a $1,400 bonus to allow workers to return home to cool tensions.
But an apartment fire on Thursday night in Urumqi, capital of China’s Xinjiang region, sparked widespread COVID protests over the weekend. Officials have cordoned off parts of Ürümqi since late August. Chinese social media users suggested COVID controls made the fire, which killed ten people, more deadly. Protests called to commemorate the deaths soon evolved into broader opposition to China’s COVID-zero policy.
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