MC Explains | No immediate boost to growth from China's easing of Covid rules

A woman and a child walk past the People's Bank of China (PBOC) building in Beijing, China. - Bloomberg

China has eased its Covid-19 measures further, in the biggest relaxation of restrictions since the pandemic began in 2020.

A Politburo meeting has pinpointed growth as the policy direction going forward. However, the rollback of the Zero Covid policy and the growth focus might not move the needle much in the near term.

Here’s why:

Moving from isolation facility quarantine to home quarantine will not increase retail sales significantly, ING said in a note.

Fewer Covid tests will reduce the fiscal deficit, and enhance resident mobility. Meanwhile, cross-location mobility should also increase as travellers will no longer need to show a green code on transportation.

“This gives a higher chance that resident mobility for the Chinese New Year will increase, which is positive for retail sales, catering and leisure travel,” Iris Pang, ING’s Chief Economist for Greater China, said in a note.

However, the expected lower categorisation of Covid from Category A (which also includes the bubonic plague and cholera) to Category B (which includes SARS, AIDS and so on) or even C (influenza, leprosy, mumps) has not mentioned at all.

This means Covid measures will still be in place until the government is comfortable that Covid cases won't drag on the healthcare system, especially ICUs.

With prudence meaning that monetary policy not delivering any more cuts in rates, fiscal spending will be the sole government-supportive tool, the economist said.

This will include finishing uncompleted homes and increasing spending on both physical infrastructure and software-type infrastructure.

Consumption should recover in 2023 but there might not be any big jump as wage growth in the manufacturing sector could be sluggish, given the risk of recession in the US and Europe in the first half of next year.

Overall, the Chinese economic growth in December and January will not be overtly impressive, though ING expects a quarter-on-quarter improvement in GDP from -0.4 percent in the fourth quarter of this year to 3.4 percent in the first quarter of 2023.