China’s COVID-19 reopening could cost it £1bn

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China’s COVID-19 reopening could cost it £1bn

On Wednesday, Chinese authorities appeared to bend to the will of the people by easing some of the harshest COVID-19 restrictions, but a new study shows the high price the country will pay if it tries to reopen too fast.

A report in the Financial Times said that the firm's models were reviewed by the Asian macroeconomic advisory firm, Wigram Capital Advisors. It warned of a winter wave of COVID infections that could swamp the healthcare system.

Wigram, which takes into account vaccinations and age data in its modellings, is expecting a death toll of 20,000 a day in Beijing, Shanghai and Guangzhou by mid-March, with daily hospitalizations peaking at 70,000.

The advisory firm is warning that the government has done nothing to prepare the country for a reopening that does not progress cautiously. That comes with a still-low vaccination rate for the elderly, a shortage of intensive care units and vaccines that don't have the potency of western rivals.

The risk is that they are underestimating just how much work the rest of the world has done to get to the point of living with Covid, said Rodney Jones, principal at the firm.

The National Health Commission has announced on Wednesday that COVID 19 tests and proof of health on cell phones will only be required for nurseries, facilities for the elderly and schools, as part of a series of new measures. Individuals can isolate at home, and schools without outbreaks have been ordered to reopen, and lockdowns will only be limited to apartment floors and individual buildings.

The easing comes after recent protests across major cities and in some industrial areas, such as Zhengzhou, the home of one of Apple's AAPL, the biggest iPhone manufacturer. An International Monetary Fund official said Tuesday that the country's outlook has darkened noticeably due to lockdowns, due in part to the country s economic outlook.

Wigram argued that a more controlled reopening of the economy would lead to a death toll of only 4,000 and total hospitalizations peaking at 200,000, rather than 500,000 in a winter wave.

On Wednesday, the Hong Kong Hang Seng Index HSI fell 3.2% after data showed China exports fell 8.7% on the year and imports fell 10.6%, despite recent moves by the Chinese government to ease back on its strict COVID policies.

Both numbers were much weaker than anticipated, as the government's zero-COVID policies have weighed on the economy. A new realization may be around the global growth engine that investors are eager to see reopen, according to analysts and markets.

It doesn't seem that long ago that markets were excited about the prospect that China is looking at options to reopen its economy, and while we are seeing a more pragmatic approach to any rebound in economic activity is likely to be muted at best, said Michael Hewson, chief market analyst at CMC Markets.

In a note to clients, Stefan Koopman, senior macro strategist at Rabobank, said that China probably has no choice but to keep forcing its cities into intermittent lockdowns until the next plenary session of Parliament in March and possibly the whole of 2023.

Koopman said there is a clear risk that more acute changes to China's COVID policies would lead to chaos in the healthcare system.