Beijing has relaxed COVID restrictions almost as quickly as it imposed them, risking a major health crisis
While China’s sooner-than-expected reopening has led some to pencil in a more robust rebound in 2023, others are taking a more cautious note.
By acting before the economy is epidemiologically ready to open up, authorities have accelerated and amplified the disruptions associated with reopening, according to Oxford Economics.
Analysis by Eurasia Group and The Economist suggests that up to 1.5 million Chinese could die as a result of the pandemic moving unchecked through China’s massive 1.4 billion population.
If a severe new strain of Covid were to emerge, it is now more likely to spread widely in China and beyond.
“China would be unlikely to identify the new variant because of reduced testing and sequencing, to recognise more severe disease due to an overwhelmed health system, and to let news of a more severe variant get out…” notes Eurasia Group. “The world would have little or no time to prepare for a deadlier virus.”
China’s economy is in a fragile state after three years of strict pandemic controls. A backdrop of weakening global growth and deepening domestic challenges demands competent economic management, but this is not a given.
”Chinese domestic activity data of late have consistently underperformed even our very low expectations, actualising the downside economic risks we’d flagged earlier from a rushed reopening and the stickiness of weak consumer sentiment in China,” notes Oxford Economics.
“With the dismantling of most Covid-controls in recent weeks, authorities have effectively accepted that the economic benefits of reopening outweigh the costs of an immediate health crisis.
”But a normalisation in economic activity will take some time, requiring among other things a change in public perceptions towards contracting Covid and vaccine effectiveness.”
The economic research group’s model estimates that China’s zero-Covid policy over the past three years has cost the economy 4.7% of its GDP in foregone activity and that this will be difficult to reverse.
“Absent meaningful structural reforms, we estimate that China will not close its output gap before 2030,” it adds.