IMF Sees Covid Opening Bump To China’s GDP, Frets Over Property

THE INTERNATIONAL MONETARY FUND has teased its forecast for China’s growth this year to 5.2%, 0.8 of a percentage point higher than its forecast last October.

The latest update to its World Economic Outlook attributes the upward GDP revision to Beijing ending its zero-Covid policy last November.

For 2024, the Fund expects China’s economic recovery to moderate to 4.5%, unchanged from its October forecast. After that, it expects growth to settle below 4% over the medium term amid declining business dynamism and slow progress on structural reforms.

Overall, the Fund expects global growth to fall from an estimated 3.4% in 2022 to 2.9% in 2023 but then rise to 3.1% in 2024, with central banks’ suppression of inflation and Russia’s war in Ukraine continuing to weigh on economic activity.

What the Fund calls’ severe health outcomes in China’ is one of the downside risks to the global economy it identifies, along with persistent inflation (a risk exacerbated if China’s economy grows faster than expected), an escalation of the war in Ukraine and worsening debt distress.

Amid still-low population immunity levels and insufficient hospital capacity, especially outside the major urban areas, significant health consequences could hamper the recovery.

The IMF says accelerating Covid-19 vaccinations in China would ‘safeguard’ the global recovery.

It again highlights the continuing weakness in property investment in China, warning that a deepening crisis in the real estate market remains ‘a major source of vulnerability’, with risks of widespread defaults by developers and resulting financial sector instability.

Developer restructuring is proceeding slowly, amid the lingering property market crisis. Developers have yet to deliver on a large backlog of presold housing, and downward pressure is building on house prices (so far limited by home price floors).

Reopening the economy should boost consumer and business sentiment and release pent-up demand, which had remained subdued coming out of 2022. At 3.0%, last year was the first time in more than 40 years that China’s economy grew below the global average.

China Reports Leap In Covid-Related Deaths

A senior health official says that nearly 60,000 people have died in hospitals from Covid-19-related illnesses since China abandoned its zero-Covid policy last month.

Some 5,500 deaths were caused by respiratory failure directly due to the virus, and the rest by underlying conditions combined with the virus, according to Jiao Yahui, head of the Bureau of Medical Administration under the National Health Commission (NHC).

Just over half the deaths were among those at least 80 years old, the least vaccinated section of society, and 90% were accounted for by those 65 years old and up..

Hitherto, Beijing has counted only directly caused deaths, a reporting practice that the World Health Organisation criticised as too narrow.

The latest number is thus a vast increase from previously reported figures, which total just over 5,000 deaths since the pandemic began, one of the lowest death rates in the world. Neither set includes deaths that may have occurred at home.

Jiao also said that emergency hospitalisations for Covid-19 have peaked, and the number of hospitalised patients continues to decline.

However, all the informal indications are that the virus is rampant across the country, particularly in rural areas. With travel around the Lunar New Year holiday due to start on January 21, infection rates could surge sharply in small towns and rural areas in the next couple of weeks.

Independent health forecasters expect at least 1 million Covid-related deaths in China this year.

China Lifting International Travel Ban Causes Concern

THE UNITED STATES is considering following Japan, Malaysia, Taiwan and India in imposing restrictions on arrivals from China now that Beijing is to allow its citizens to travel internationally again from January 7.

European countries such as Germany and the United Kingdom are monitoring the situation.

Traffic to web travel sites in China has sharply increased since authorities announced the coming lifting of the last of the zero-Covid restrictions earlier this week.

Searches for Hong Kong, which has now lifted all its Covid restrictions, Macau and neighbouring countries like South Korea, Japan and Thailand, were the most popular.

However, it will take some time for airlines to restore capacity on their China routes. Business travel is likely to rebound before tourist trips.

Nonetheless, foreign countries are concerned by the number of infected travellers arriving and the possibility that new virus mutations will occur within a population among which the infection rate is surging.

At this point, new mutations are a theoretical possibility more than an immediate threat.

Restrictions are likely to include a requirement for visitors to be fully vaccinated and to show a recent negative test.

The United States already requires the former of all arrivals, but not the latter. A mandatory negative test on arrival from China is one measure under consideration. Malaysia, Japan and Taiwan now require it.

Responding to a question about the prospect of restrictions, Foreign Ministry spokesperson Wang Wenbin highlighted the need for more international travel to maintain the stability of global supply chains and restore the growth of the world economy, underlying the economic imperatives currently driving China’s public health policy.

Updates:

• The United States is to require all arrivals from China to show a negative Covid test.
• Italy says it will test all arrivals from China after almost half of the passengers on two flights to Milan from China were found to have the virus. 
• However, the EU is saying that screening all arrivals from China is unjustified at this point as the BF7 omicron variant that is prevalent in China is already present in Europe but has failed to become dominant.

China Scraps Final Provisions Of Zero-Covid Policy

CHINA WILL OPEN its borders on January 8 after keeping them tightly closed for almost three years to prevent the spread of Covid-19.

Quarantine requirements for inbound travellers will end, and Chinese citizens will be able to apply to travel overseas again, the National Health Commission announced through the device of downgrading to a Class B infectious disease from that date.

This marks the end of the zero-Covid policy. It has happened more rapidly than this Bystander expected, but China has become the last major country to accept that Covid has to be lived with if any semblance of everyday life — economic and social — is to resume.

The cost of the under-preparation for the policy change has been a ferocious surge in infections and, in all probability, deaths. Officials have stopped releasing case number data and have reported few deaths. Estimates and anecdotal reports are all there are to go on.

Airfinity, a UK predictive health analytics firm, has put the potential death toll at between 1.3 million and 2.1 million, given China’s low vaccination and booster rates and a lack of hybrid immunity. It also estimates that case rates could peak at 3.7 million a day next month and then at 4.2 million a day in a second wave of infections in March.

One In Six In China Reportedly Infected With Covid

AN ESTIMATED 250 MILLION people in China, or 18% of the population, were infected with Covid-19 in the first 20 days of December, according to a report in the Financial Times.

The estimates of the spread of the virus in the wake of Beijing’s rapid relaxation of its zero-Covid policy are attributed to Sun Yang, a deputy director of the Chinese Center for Disease Control and Prevention, and sourced to two people said to be familiar with a closed-door briefing Sun gave to senior health officials on Wednesday.

Sun’s numbers, self-evidently, stand in stark contrast to the 62,592 symptomatic Covid cases over the same period reported by the National Health Commission.

However, to this Bystander, they correlate far more closely with the anecdotal evidence of widespread infection, overwhelmed hospitals and crematoriums struggling to handle a surge of corpses.

China Restores Growth As Its Priority

THE FIRST ANNUAL Central Economic Work Conference since October’s Part Congress and the zero-Covid policy was rolled back following street protests earlier this month was held in Beijing at the end of last week.

It also followed the publication of the high-frequency economic data for November that underlined how weak economic activity had become, from retail sales to exports. Both the manufacturing and non-manufacturing purchasing managers’ index were in contractionary territory.

The data, as much as the protests of frustration against strict lockdowns, may have driven the first steps in relaxing zero-Covid to alleviate the economic impact that it was having.

The OECD forecasts GDP growth of 3.3% this year, although some private economists believe the figure will fall below 3.0%. Waves of infections following the easing of zero-Covid are likely to mean the economy will start 2023 on the back foot.

However, the announcement following the work conference confirms that the leadership’s priority has switched from disease elimination to economic revival.

Relatively low inflation provides headroom for further monetary loosening. However, the meeting indicated that policymakers are more likely to turn to fiscal stimulus, with the twin objectives of stimulating domestic consumption and avoiding another round of property sector-related debt.

Covid-19 Spread Stresses China’s Health System As Restrictions Ease

The lifting of the most arduous restrictions under the zero-Covid policy has led to strains on China’s public health system that will get worse in the coming months.

Easing lockdown restrictions and shortening quarantine periods has led to a surge of infections. How many is uncertain due to the reduction in testing and changes to what is recorded as an infection.

Anecdotal evidence from around the country is that this surge is severe. Public health officials have warned that they expect another wave when people travel home for Lunar New Year and a third when they return to work after the holiday.

There is also circumstantial evidence that deaths from Covid-19 have spiked, such as reports of exceptionally high increases in the number of cremations.

This would be to be expected given the relatively rapid easing of restrictions and the relatively under-vaccinated status of the population, especially the elderly.

A drive to raise vaccination rates has got more shots administered of late, but getting a critical mass of the population double vaccinated and with a booster necessarily takes time, given the low starting point.

If the easing of zero-Covid was accelerated by the street protests, then authorities are taking a gamble that they would probably have preferred not to.

The true death rate is never likely to be known. One reason is that China has a narrow definition of Covid mortalities, excluding any deaths from underlying conditions that the virus made fatal. Other jurisdictions count these as Covid deaths, although China consistently has not.

Also, Beijing will not permit any challenge to its narrative that the Party has kept the people safe from Covid deaths — unlike those countries whose governments allowed hundreds of thousands to die. The published numbers will dutifully confirm that.

Meanwhile, the hospitals are filling up and intensive care units are in short supply. So are some medicines following panic buying.

Industry and supply chains are still being disrupted, with reports emerging around the country of staff missing work because of infection. Such disruptions to the economy are likely to continue through Lunar New Year.

The head of the World Health Organization, Tedros Adhanom Ghebreyesus, says he is ‘very concerned over the evolving situation in China’ and appealed to Beijing to be more transparent with the data.

China Further Eases Zero-Covid But Risks Abound

CHINA HAS ANNOUNCED several measures that ease the strict implementation of the zero-Covid policy, but implementing ‘living with Covid’ remains fraught with risk if mishandled.

The changes include:

• letting those infected with Covid-19 isolate at home rather than being forced into quarantine camps;
• removing the requirements to show negative tests for entering many public places;
• reducing mandatory testing and replacing PCR tests with lateral flow tests; and
• allowing greater freedom to travel.

There are also admonitions to local authorities to narrow the areas that they lock down and prohibitions on blocking emergency and fire exits in quarantined buildings.

The latest changes to zero-Covid follow the widespread street protests two weekends ago. However, they are a continuation of easing measures announced before then, implying that authorities were already moving towards a long-term exit from zero-Covid and its economic costs, even if the public unrest may have advanced the timing. 

Zero-Covid is being eased, not abandoned; the changes are being described as ‘optimisations’ of the policy, and local officials instructed to implement it so it is not so onerous.

Relevant departments in localities are required to rectify oversimplified or one-size-fits-all approaches and excessive policy steps, oppose and curb pointless formalities and bureaucratism, and faithfully implement prevention and control measures to maximize the protection of people’s lives and health and minimize the impact of the epidemic on economic and social development.

Lockdowns will continue to be the main means of prevention and control of new outbreaks. Just as central government delegated the implementation of strict zero-Covid to local officials, so will the easing. Different parts of the country will thus proceed at different paces, determined in part by local capacity to provide hospital care for the inevitable spike in cases that will occur. 

China’s public health system remains rudimentary in many places, with citizens using hospitals for primary care. One of the risks China faces is that its hospitals are overwhelmed by spikes in cases if it reopens too rapidly, especially as zero-Covid has meant that there has been less build-up of natural immunity than in other countries.

The ratio of four intensive care unit (ICU) beds per 100,000 people will be inadequate if China sees a rise in cases on the scale that other countries experienced when opening up. That is what happened in Hong Kong, where booster vaccination rates are higher than in the mainland.

China’s relatively low vaccination rates among the vulnerable population of the elderly will exacerbate that. Only 69% of those aged above 60 and 40% of those over 80 have had a booster shot. 

Raising those rates is a priority, with local authorities told to provide ‘incentives to mobilise the enthusiasm of the elderly to get vaccinated’. China’s elderly have deep scepticism of vaccinations, so the incentives will have to be strong, even forceful if their vaccination rates are to be raised.

A second round of booster vaccinations will also be launched to top up the effectiveness of those doses already administered, which are generally less long-lasting and effective than foreign vaccines. Front-line medical staff will be first in line for the second boosters. Reports say that a rise in infections among health workers in Shijiazhuang, the capital of Hebei province, was the cause of a reversal last month of a shortlived experiment with looser zero-Covid implementation.

State media is likely to go into overdrive to undo the demonisation of the dangers of Covid it had previously promoted, cheerlead for booster vaccinations and instruct people about how to deal with mild cases at home to keep them from overburdening the hospitals.

Lunar New Year next month, when there is traditionally extensive travel around the country, provides a deadline for raising vaccination levels. How many migrant workers are allowed to return to their hometowns will be a litmus test of how much improvement in vaccination rates has been achieved.

China Sets Up Cautious Zero-Covid Course Correction

IT HAS BEEN an eventful and direction-changing ten days in China, starting with the widespread protests last weekend against the zero-Covid policy, the most significant expression of public dissent since the events in Tiananmen Square in 1989.

Then came the announcement of the death of former Premier Jiang Zemin. There was a certain symbolic symmetry to be spotted by those looking for such things as it was Jiang who took over as China’s leader in the aftermath of the suppression of the Tiananmen protest and then oversaw two decades of double-didgit economic growth and opening to the outside world.

However, the death allowed for the reassertion of solemnity and control.

As the week ended, Vice-Premier Sun Chunlan, the Politburo member responsible for implementing President Xi Jinping’s signature zero-Covid policy, gave hints of further relaxations of the approach to come. These will be partly in response to the street protests and partially because the draconian restrictions of zero-Covid have failed to contain the virus’s spread this year while the economic costs are mounting.

Changes will be framed as improvement of current policies or adaptation to new circumstances; state media has already started to soften the official line on the deadliness of the threat of the virus. Officials lifted lockdowns in dozens of districts in big cities like Shanghai and Guangzhou in the second half of the week.

This is not the end of zero-Covid, at least not yet. That will require mass vaccination of the elderly (now being prioritised), higher booster vaccination rates among the broader population and a greater capacity within the hospital system to treat severe cases, which will take months at least. 

Lifting restrictions too early would result in deaths running, it has been estimated, into the hundreds of thousands. That would be politically unacceptable, especially given that the narrative over the past three years about China’s approach has saved lives compared with the recklessness of the West in accepting ‘living with Covid’.

Yet Beijing is now contemplating doing the same for one of the same reasons as the West, the economic cost of shutting down daily and business life.

Combined with the global headwinds buffeting the economy, which are likely to stiffen as the world economy heads towards recession, a still deeply troubled real estate sector and continuing tensions with the United States, this will keep China’s GDP growth below potential for the foreseeable future. 

The OECD is forecasting 3.3% growth this year, and 4.6% next, which may be optimistic, although the indications from Beijing are that there will be more attention paid to growth from now on, so more fiscal and monetary support is likely.

The forthcoming Politburo meeting is expected to confirm that, although details will likely not be known until the subsequent Central Economic Work Conference mid-month.

China Cracks Down On Zero-Covid Protests, Hints At Exit Strategy

AUTHORITIES ARE CRACKING down on those involved in the weekend’s protests against China’s zero-Covid policy. By the standards of these things, they are taking a relatively light-handed, although still firm, approach.

Heavy police presence and the closure of streets where demonstrators had planned to gather averted a third day of protests in Shanghai, Beijing, Wuhan and other cities around the country. Authorities have questioned known protestors, tracking some down to their homes, but reports suggest those detained are being released the same day. Nonetheless, the warnings will have been sent. The censorship of social media has gone into overdrive.

The elimination of independent media and non-governmental organisations, critical conduits for turning popular discontent into organised political action in autocratic and semi-autocratic states, always made it unlikely that the weekend’s protests would develop into something more threatening to the leadership in Beijing.

The scale of the numbers taking to the streets will likely have caused surprise and concern, and the widespread student involvement may have been more alarming, given the historical role of student protest in Chinese politics. Nonetheless, neither would have been seen as being beyond the capabilities of a well-honed security apparatus to suppress.

State media are now spinning a narrative that the worst abuses of the zero-Covid regime are the responsibility of over-zealous local officials, not the central government, the target of some protestors’ ire over the weekend. Exemplary punishments for some hapless local officials can be expected.

Public health officials are reiterating that the zero-Covid policy will continue, but in mollifying terms. The frustration and anger at zero-Covid cuts across all socio-economic classes, so it is difficult to fall back on the playbook of vilifying one group as troublemakers as politically motivated or portraying the protests as the work of hostile foreign interests.

That has not stopped the Central Political and Legal Affairs Commission wheeling out the well-practiced line that it was ‘necessary to crack down on infiltration and sabotage activities by hostile forces in accordance with the law’.

More notably to this Bystander, officials are stressing the need to step up vaccination of the elderly, the most vulnerable group to the latest outbreaks of infection. Only once vaccination rates are improved can an exit strategy from zero-Covid be contemplated.