Mon. Jan 24th, 2022

China can maintain its strict border restrictions for the entire year as it prepares to host the Winter Olympics and a series of political events in 2022, Goldman Sachs Group Inc. said.

Reports that vaccines manufactured by the domestic firm Sinovac Biotech Ltd. made, offering limited protection against the omicron variant is likely to strengthen China’s decision to stick to its Covid Zero strategy, analysts led by Andrew Tilton wrote in a note on Tuesday.

China is one of the few countries in the world still committed to the Covid Zero approach, while many others have moved to life with the virus.

Strict measures to contain outbreaks – such as the current severe tsunami in Xi’an – have led to disruptions in production and travel, and a slump in consumption, which is putting pressure on an economy already plagued by a downturn in the housing market.

Quarantine requirements for travelers arriving from abroad can be kept in place due to major disruption of the Winter Olympics, which will begin next month, the annual meeting of the national legislature in March, and the 20th Communist Party Congress in the fourth quarter, the To avoid Goldman. analysts said.

President Xi Jinping is expected to secure a precedent-setting third term during the one-in-five-year party event.

With Covid-19 likely to be widespread outside China and with the party congress approaching in the last quarter, “we doubt policymakers will eliminate quarantines before then,” analysts said. “With the transfer usually higher in the winter months, it is possible that boundary restrictions can be kept largely intact until spring 2023.”

China Southern AirlinesChina has introduced some of the world’s strictest border controls to control COVID-19 [File: Qilai Shen/Bloomberg]

China’s stringent measures to contain Covid will not work as well this year as they did in 2020, said Ian Bremmer, president of Eurasia Group, a political risk consulting firm. That means supply chain challenges will continue around the world, and inflation may continue longer than people would otherwise expect, he said.

“The ability to live with the virus, an extremely easily transmitted virus that is not as deadly, is the exact opposite of China’s zero-Covid policy, and zero-Covid will not work for them. But they will stick to it, “Bremmer told Bloomberg TV. “It’s not primarily a virus-driven challenge, but it’s one that the Chinese government cannot get out of their way.”

Beijing has promised to shift its policy focus this year to stabilizing economic growth by avoiding risks, as it warns against a triple whammed of shrinking demand, a supply shock and weakening expectations.

The central bank boosted liquidity last month by reducing the amount of cash borrowers have to keep in reserve. Authorities also said they would better meet what they called “reasonable demand” for homes as they moved to curb the effects of a growing debt crisis engulfing the country’s real estate industry.

Goldman expects another decline in the reserve requirement ratio in the first quarter, with easing focused on credit and fiscal measures that dampen but not fully absorb the downturn in the housing market.

Rest of Asia

The yuan could see “small further gains” to $ 6.2 per dollar by the end of this year, as China maintains a “significant” current account surplus, analysts said. The Chinese currency will also be solid net portfolio inflows driven by index inclusions and a possible acceleration in share purchases by foreigners with local equities likely to outperform this year than last year, they added.

For the rest of Asia, a shift to ‘living with Covid’ is likely to dominate the economic response to the pandemic, with overall inflation unlikely to accelerate significantly further from current levels as central banks raise interest rates, led by New Zealand, South -Korea and Singapore.

“We expect all three to increase further in 2022, and that many of their peers will join the region,” the Goldman analysts wrote. “The next group of central banks that we think are likely to rise is India, Malaysia, Indonesia and Taiwan.”

Japan’s economy is likely to expand by 2.7%, which would be the fastest pace in a decade, lifted by fiscal easing and global demand.

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