China's tightening of Covid-fighting measures has diminished hope that the ruling Communist Party may start relaxing the rigorous restrictions after it concludes its 20th Party Congress in October. Doubling down on the Covid Zero policy may not only cause more pain in the already struggling economy, but also undermine confidence among investors and the general public, something former Premier Wen Jiabao has said is "more important than gold and money."
The nation's National Health Commission (NHC) on Thursday announced a raft of new measures in its fight against the Covid-19 virus, including asking people to minimize travel during the Mid-Autumn Festival next week and National Day holidays in October. People traveling via airplanes and railways will need to present negative PCR test results within 48 hours prior to boarding. They must show proof of a negative test within 72 hours when checking into hotels and visiting tourist attractions.
In a reversal of its guidance in June, the NHC now requires all regions to conduct regular PCR testing, regardless of whether they have outbreaks or not. Previously, the authorities refuted such tests as unnecessary.
The new measures, which start on Sept. 10 and end on Oct 31, seem to be designed for minimizing outbreak risks before the Party Congress scheduled for mid-October.
To some China watchers, such as Nomura's economist Ting Lu, the Covid Zero policy is unlikely to change until at least 2023 because Beijing may either extend or reintroduce these measures after October. It's partly due to the calendar: the virus is more infectious during the winter; millions of people will travel during the Chinese New Year holidays in January; and the once-in-a-decade central government reshuffling is due at the National People's Congress's annual session in March.
Market sentiment is already poor. The CSI 300 Index tracking companies listed in Shanghai and Shenzhen ended a two-day advance. Chinese shares traded in the US tumbled.
Even before the new rules were announced, economists were already busy lowering forecasts for China's economy. Nomura this week cut its forecast for 2022 growth to 2.7% from 2.8%. On Thursday, Barclays lowered its growth estimate to 2.6% from 3.1%, citing challenges including Covid lockdowns. Of 78 market participants polled by Bloomberg, 25 now see China's growth below 3% this year.
The Covid policy is increasingly unpopular among some Chinese and it's politically sensitive. On Wednesday, Huatai Financial Holdings (HK) published a report saying an analysis of pandemic data in Asia suggests that the death rate from Covid variant BA.5 is lower than that of influenza. The report, co-authored by chief economist Eva Yi and analyst Xun Zhu, went viral on social media before Huatai shelved the analysis, even though it didn't comment on Beijing's policy.
Nobody is expecting the strict rules to be removed before the Party Congress. But political and policy finesse will be in urgent need afterward to save the economy and restore confidence following the prolonged quixotic fight against Covid, before it's too late.