China Could Stay Closed All Year 2022: Goldman Sachs | Coronavirus pandemic News

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

The information that vaccines produced by the state-owned Sinovac Biotech Ltd. offer limited protection against the omicron variant will likely strengthen China’s resolve 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 turned to life with the virus.

Strict measures to contain epidemics – like the current Xi’an hard lockdown – have resulted in disruptions to production and travel, and lower consumption, adding pressure on an economy already weighed down by a slowdown in the economy. housing market.

Quarantine requirements for travelers arriving from overseas could be maintained to avoid major disruption of the Winter Olympics, which begin next month, the annual meeting of the national legislature in March, and the 20th Communist Party Congress. in the fourth quarter, Goldman analysts said.

President Xi Jinping is expected to get an unprecedented third term at the party event once every five years.

With Covid-19 likely to be spread outside China and with the party congress approaching in the last quarter “we doubt policymakers will eliminate quarantines before then,” analysts said. “With transmission typically higher during the winter months, it is possible that border restrictions will remain largely intact until spring 2023.”

China has some of the world’s toughest border controls in place to control COVID-19 [File: Qilai Shen/Bloomberg]

China’s tough measures to contain Covid won’t work as well this year as they did in 2020, said Ian Bremmer, chairman of Eurasia Group, a political risk consultancy. This means supply chain challenges will continue around the world and inflation could persist longer than expected, 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’re going to stick with it, ”Bremmer told Bloomberg TV. “It is not primarily a challenge caused by a virus, but it is a challenge the Chinese government cannot meet.”

Beijing has vowed to reorient its policy this year towards stabilizing economic growth rather than preventing risks, as it warns of a triple whammy of shrinking demand, a supply shock and weakening prices. expectations.

Last month, the central bank boosted liquidity by reducing the amount of cash lenders must keep in reserve. Authorities have also said they will respond better to what they call a “reasonable demand” for housing as they work to limit the fallout from a growing debt crisis engulfing the country’s housing sector.

Goldman expects a further reduction in the reserve requirement ratio in the first quarter, with credit-focused easing and tax measures cushioning but not completely absorbing the slowdown 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, with China maintaining a “significant” current account surplus, analysts said. The Chinese currency would also benefit from a net inflow of strong portfolios thanks to index inclusions and a potential acceleration in stock purchases by foreigners, with domestic stocks likely performing better this year than last year, they added.

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

“We expect the three to tighten further in 2022 and be joined by many of their peers in the region,” Goldman analysts wrote. “In our opinion, the next group of central banks most likely to increase are India, Malaysia, Indonesia and Taiwan.

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

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