China will continue its zero-Covid policy even at risk of burdening corporates

TWENTY months since closing its borders to foreigners in late-March last year, and with no end to its zero-Covid policy in sight, China's economy is chugging along but economists warn Beijing risks longer-term scarring and burdening corporates, which are already showing weakening credit trends.

Throughout the pandemic, China has employed lockdowns, quarantines and compulsory testing for the virus. Late October, it offered booster shots as new outbreaks of the highly transmissible Delta variant threaten its zero-Covid tolerance. It started inoculating children as young as three, making it one of the very few countries in the world to do so. As of Nov 10, China has administered 2 shots of the Covid-19 vaccine to more than 1 billion people, covering 75 per cent of its population. But even as the rest of the world is mulling reopening their air and land borders, China remains steadfast in its commitment to zero Covid. While production output and retail sales performed better than expected in October, economists are not changing their outlook for China.

"Given the upcoming Beijing Winter Olympics (starting February 4) and the 20th Party Congress (October-November) next year, we expect the Chinese government to continue its "zero-Covid" policy despite a high vaccination rate and medical improvements," noted Goldman Sachs economists.