What We Know About China's Potential End to Covid-19

There is much speculation about what will happen to China's Covid Zero policy. Some believe that the policy will remain in place, while others think that it may be relaxed or even abandoned altogether. No one knows for sure what the future holds, but the debate continues to rage on.

After President Xi Jinping defended the strategy of Covid Zero in his much-anticipated Communist Party congress address in October, investors were left wondering what comes next. The lockdowns and blanket testing that are the hallmark of Covid Zero have continued, leaving many people wondering what the future holds.

Without a clear idea of when the current situation will end, traders have been looking for any signs of progress. Recently, an unverified screenshot claiming to show China's plans to reopen businesses has stoked a $450 billion rally.

The rumors about a possible change in China's Covid-19 strategy continued over the weekend, but were quashed by officials from the National Health Commission who said they were sticking to the current plan.

Since Xi Jinping's speech at the 19th Communist Party of China National Congress in October 2017, there have been some solid indications that Chinese officials have at least started a dialog about how to ease the more isolationist aspects of the country's Covid-19 response.

Officials are debating how to further reduce mandatory hotel quarantine for incoming travelers, Bloomberg News reported last month. The aviation regulator has also encouraged state-owned carriers to add more flights, and officials are considering scrapping a system that penalizes airlines for bringing a certain number of Covid-positive passengers into China. All of these measures are at the discussion or planning stage, but they point to a desire to ease up at the border.

German Chancellor Olaf Scholz has indicated that China may be willing to roll out more effective, foreign Covid shots. This is seen by many as key to being able to reopen without a mass wave of deaths. Scholz said on Friday that the country had agreed to make BioNTech SE’s vaccine available to foreigners living there. He said that this was a potential first step toward wider adoption in the world’s second-largest economy.

It is, however, hard to find concrete signs of China easing its internal Covid playbook of lockdowns, curbs on domestic travel and frequent mass testing.

Although Beijing has increased its efforts to make Covid Zero less intrusive, it seems that this has mainly resulted in restrictions being carried out in a more covert manner. Lockdowns and other measures such as shutting schools are now being done in a more incremental way, with city neighborhoods being locked down one by one, in order to avoid making a broad announcement. Some residents have reported only finding out about the lockdown when they get home.

According to an index compiled by Japanese bank Nomura, lockdowns actually increased last week. Nomura analysts wrote that as of Thursday, just over 10% of China’s total gross domestic product was under some form of lockdown, up from 9.5% last Monday. A seven-day lockdown was ordered around the world’s biggest iPhone factory in Zhengzhou, central China, spurring Apple Inc. to cut its outlook for shipments of the devices. In addition, a district of southern manufacturing powerhouse Guangzhou will be locked down until Friday.

Some areas in the northwest have been under lockdown for several months now, and a large testing network has been set up in some cities.

Officials in China are sticking to the script that Covid Zero is the correct approach for the country and that the government will implement it "unswervingly." This is the party line that has been promoted by the government and there are no cracks in it.

Investors have been trying to interpret the language used by state media and authorities when discussing Covid-19, looking for signs that the rhetoric is changing. While a change in rhetoric can be a key indicator, the recent examples that have been seized on are not very strong.

Some traders have been circulating an article from The People's Daily's health app, in which China CDC's chief epidemiologist Wu Zunyou appears to downplay the risk of contracting long Covid. However, those comments were made back in October, and the article was simply conveying the observations of a Hong Kong-based expert who said that the definition of long Covid is still uncertain.

The local health authority in Henan province described Covid as a “self-limiting” disease on Oct. 31, meaning it can resolve without treatment. However, analysts at Australia & New Zealand Banking Group have argued that this phrase is not new, has been used before in China and is therefore irrelevant for the parameters that Beijing focuses on.

The analysts noted that the development of antibodies by the immune system can help to combat the virus. However, policy makers are still concerned about the potential impact of long Covid and the burden on medical facilities.

There has been much discussion about the fact that China's vaccines are not as effective as Western mRNA shots, and this may be one reason why the country has been reluctant to declare itself free of Covid-19.

Although the country's homegrown vaccines are highly effective in preventing fatalities, there is still a small chance of dying from Covid. In China's vast population, that could amount to millions of deaths, which would be problematic for Xi. He has held up China's vastly lower Covid death toll as supreme evidence of the policy's rectitude, especially compared with the US.

There has been some news on the vaccine front, with Friday's BioNTech development preceded by the approval and rollout of a nasal vaccine from Chinese company CanSino Inc. in some cities. However, despite this, the country's vaccination rate has plateaued, with rates among the elderly still lower than in other countries. Their fears are less about how the vaccine is administered and more around whether it can have adverse effects if taken when you have another medical condition, as many older people tend to.

It's possible that China's top leaders are reluctant to allow the virus to spread freely until the risk of death drops further. This could be due to the emergence of a milder virus variant or the development of more effective vaccines and antivirals.

The political rhetoric will have to change in clear terms. This means that politicians will have to be more clear and concise when communicating with the public.
Xi will need to signal that victory is in sight in order to maintain his legacy.