Is China ready to exit COVID-Zero mode?

After President Xi Jinping defended the strategy in his much-anticipated Communist Party Congress address in October, investors wondered what lies ahead as the lockdowns and blanket testing that are hallmarks of COVID zero continue.

In the absence of a clear outlook on when this will all end, traders have seized on what they see as a sign of progress, with an unverified screenshot of mysterious origins claimed in China last week. Was making detailed plans to reopen the rally to $450 billion.

Rumors continued over the weekend, ahead of a briefing by China’s National Health Commission, where new discussions about a COVID zero exit plan were punctuated by officials saying they were following the strategy thoroughly.

As markets continue to whipsaw, and China’s intentions hold key to everything from the fortunes of beaten domestic stocks to the global economic outlook, we’ve brought together what we know about the controversial strategy:

Has anything changed recently?

Since Xi’s speech at the Party Congress, there have been some concrete signs that Chinese officials are at least starting talks about how to reduce the more separatist aspects of Covid Zero.

Officials are debating how they might go about further easing mandatory hotel quarantine for arriving travelers, Bloomberg News reported last month. The aviation regulator has 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. does. All of these—while largely at the stage of discussion or planning—point to a willingness to relax limits.

On the vaccine front, German Chancellor Olaf Scholz gave the first indication that China may be ready to roll out more effective, foreign COVID shots – which many have seen as being able to reopen without a huge wave of deaths. Seen as the key – when he said Friday. The country had agreed to provide BioNTech SE vaccine to foreigners living there. Scholz said it is a potential first step toward widespread adoption in the world’s second-largest economy.

So is China preparing to eliminate Kovid Zero?

It is unclear. While easing border restrictions may help ease China’s isolation from the rest of the world, it will not address the more economically damaging aspects of Covid Zero. In fact, curbing travel could help make COVID Zero more sustainable, strengthen a system of mass surveillance and reduce global interactions that could be beneficial to Xi.

However, it is hard to find concrete signs of China easing its internal COVID playbook of lockdowns, curbs on domestic travel and repeated mass testing.

While Beijing has intensified its directive to make Covid Zero less objectionable to local authorities, the ban seems to have been mainly under the radar. Lockdowns and other restrictions such as closing schools are now more covert. To avoid making a sweeping announcement, a city may be shut down sequentially from neighborhood-by-neighborhood, and some residents have reported only finding that they were closed when they arrived home. was.

If anything, the lockdown actually extended last week, according to an index compiled by Japanese bank Nomura. More than 10% of China’s total GDP was under some form of lockdown as of Thursday, Nomura analysts wrote, up from 9.5% last Monday. A seven-day lockdown was ordered around the world’s largest iPhone factory in central China’s Zhengzhou, prompting Apple Inc. to cut its outlook for shipments of the devices, and the southern manufacturing powerhouse, One district of Guangzhou will be closed until Friday.

Parts of the Northwest have been closed for months, and a vast brick-and-mortar testing network has been built in some cities.

What about that unverified screenshot?

Circulated by market commentators and traders via social media, screenshots claim that a member of China’s top leadership met with experts – translated by many as “committee” – again by March next year. To discuss a detailed plan for opening from. It was not clear who wrote the screenshot or where it came from. There were no letterheads, watermarks or other identifying features.

Despite this, it seized on a rally in Chinese stocks, which are trading near multi-year lows, thanks to the economic pull of Covid Zero.

A week later, no media organization—Chinese or international—has been able to verify the screenshots, and when asked about it at a briefing on 1 November, a spokesman for China’s foreign ministry said it was not interested in any Kovid was unaware of the Zero Exit Committee.

Since then similar speculative reports have also failed to pile up. (We have looked at most of them).

What are Chinese officials and state media saying now?

What they have always been saying: Officials are sticking to the script, there is no crack in the party line that Covid Zero is the right approach for China and that the government will implement it “incredibly”.

Investors are working hard to read about how state media and officials talk about COVID, which appears to represent a change in hype as minor details of the virus. While a rhetorical shift is certainly a leading indicator to watch, the examples that have been confiscated are weak recently.

For example, some traders passed an article posted on the health app of party mouthpiece The People’s Daily in which China CDC’s chief epidemiologist Wu Zunyu appeared to long downplay the risk of contracting COVID. But those comments were made in October, and the article only conveyed comments from a Hong Kong expert that the definition of the long COVID is still in doubt.

Similarly, the local health authority in Henan province described COVID as a “self-limiting” disease on 31 October, meaning it may resolve without treatment. But as analysts at the Australia and New Zealand Banking Group, led by the head of Greater China economist Raymond Yeung, wrote in a note on Monday, the phrase is not new, having been used before in China and the parameters that Beijing pays attention to. focuses, is irrelevant to them.

“This means the immune system can develop antibodies to fight the virus. However, policymakers are still concerned about the impact of a longer COVID and the burden on medical facilities,” the analysts wrote.

Why the reluctance to pivot despite vaccines?

Much has been made of the fact that China’s vaccines are not as effective as western mRNA shots and this may be the reason for the reluctance to quit COVID Zero.

But the country’s domestic vaccines are highly effective in preventing fatalities. The problem is likely to be that even with inoculation and antiviral pills like Pfizer’s Paxlovid—which China is producing domestically—there is still a small chance of dying from Covid. In China’s vast population, it could cause millions of deaths, which would be problematic for Xi. He has especially hailed China’s far fewer Covid deaths than the US’s as supreme evidence of the correctness of the policy.

There has been some news on the vaccine front, with Friday’s BioNTech development ahead of approval and rollout in some cities of a nasal vaccine from Chinese company CanSino Inc. with still less than other countries. Their fear is less about how the vaccine is administered and more about how it could have adverse effects if you have another medical condition, as do many older people.

It is also possible that China’s top leaders are reluctant to allow the virus to spread freely until the risk of death is further reduced, either through the emergence of an even milder virus variant than Omicron , or even more so through the development of effective vaccines and antivirals.

What needs to be done before China gets out of Kovid Zero?

Experts surveyed by Bloomberg are looking for several key developments, some of them even laid out by Chinese officials.

And the political rhetoric has to be changed into clear words.

After committing so much of his legacy to a campaign like the war against COVID, Xi has to indicate in no uncertain terms that victory is in sight.