Research Briefing | Nov 21, 2022

Which way to the (Zero-Covid Policy) exit for China?

We think China’s exit from its zero-Covid policy will only happen in H2 2023 – a more cautious view than consensus. From an epidemiological and political perspective, we do not think the country is ready yet to open up.

What you will learn:

  • Still, we expect the Chinese authorities will continue to fine-tune Covid controls over the coming months, moving toward a broader and more comprehensive reopening later. Recent announcements that simplify various protocols are a step in that direction.
  • If we are right about China’s gradual and orderly exit from zero-Covid, this will have meaningful macro implications. It’s likely to be reflationary, lifting domestic demand and services and bringing about positive knock-on effects for the ailing domestic property sector. Alongside a pick-up in demand-side inflation, strengthened economic activity will allow a gradual normalisation of the loose policy settings adopted this year.
  • As international travel resumes in and out of the mainland, China’s services deficit will widen on the back of a rebound in outbound tourism that more than offsets a pickup in services export receipts.
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