A traveler wearing protective gear at Shanghai Hongqiao Railway Station in Shanghai, China, Monday, Dec. 12, 2022. Photographer: Qilai Shen/Bloomberg via Getty Images
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Mainland China’s reopening came faster than investors expected, and Goldman Sachs warns it will lead to short-term strains on the workforce and supply chains.
According to mobility data analyzed by economists at Goldman Sachs, China is likely to see “weaker growth momentum during the front-loaded ‘exit wave’ on the back of rising infections, a temporary labor shortage and increased supply chain disruptions,” it said in a note. Tuesday.
“Amid the rapid reopening, the challenge to China’s medical system may have significantly escalated, particularly for less developed inland and rural areas amid the upcoming Lunar New Year holiday,” Goldman economists including Lisheng Wang and Hui Shan wrote, adding that they expect mainland China’s daily new cases reach a peak in late December or early January.
On Saturday, Shanghai’s The Tesla factory has reportedly stopped production as the company faced a new wave of Covid cases within its Chinese workforce. The company’s stock dipped more than 10% lower on Tuesday and continued to hover around 2022 levels.
Tesla’s Asia suppliers LG Chem in South Korea and China Modern Amperex technology fell more than 3% in Asian trade on Wednesday. Japanese Panasonic also fell marginally.
According to economists polled by Reuters, China’s factory activity is expected to have fallen in December when its National Bureau of Statistics releases its manufacturing purchasing managers’ index on Saturday.
Economists forecast the reading to come in at 48, below the 50-point mark that separates growth from contraction and in line with levels seen in the previous month.
Short-term pressure on the medical system
Goldman Sachs added that the sharp pivot from China’s zero-Covid policy is creating headwinds for China’s health system.
“We view the new guidelines as a major step toward full reopening, but we are cautious about the increased challenges for China’s medical system in the near term,” the economists said in the note.
“This underscores the urgency of more and faster policy efforts to increase elderly vaccination and other medical resources,” such as intensive care unit beds, oral medications and medical staff, the memo said.
Health officials said earlier this week that the country’s ICU beds and resources are approaching capacity as infections increase.
Positive outlook for GDP, Chinese yuan
Despite short-term concerns about China’s reopening, economists have a rosy outlook for China’s long-term growth.
“Improved growth expectations in 2023 may offset unfavorable factors such as the deterioration of the goods and services trade balance,” the Goldman Sachs note said.
The economists added that the latest reopening developments support the firm’s earlier forecast that China’s economy will grow 5.2% in 2023 after expanding 1.7% in the fourth quarter of 2022 on an annualized basis.
The most recent outlook was revised in mid-December, when it raised its forecast for 2023 full-year growth from an earlier prediction of 4.5%.
“While we are confident that growth should accelerate meaningfully upon reopening, there are still significant uncertainties about Covid developments, consumer behavior and policymakers’ responses, which in turn will determine the pace and extent of the Chinese economy’s recovery next year,” the paper said. 16 Dec. note
The firm added that the country’s reopening measures are also positive for the onshore yuan, adding that it expects only a marginal weakening of the currency over the next year to maintain 6.90 levels against the US dollar.
International travel must resume
Economists at Goldman Sachs said the latest moves are likely to benefit the surrounding region’s growth as travel normalizes.
In a Dec. 11 note, the economists said Hong Kong and Singapore are likely to benefit the most, with their GDP rising by 2.7% and 1% respectively – a halo effect from China’s reopening boosting its own domestic final demand by 5 percentage points.
Taiwan, Australia and Malaysia will also see a moderate boost of around 0.4 percentage points to their economies, the note said.
Travelers with luggage in Terminal 1 of Hong Kong International Airport on December 20, 2022 in Hong Kong, China. (Photo by Vernon Yuen/NurPhoto via Getty Images)
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Iris Pang, China’s chief economist and INGsaid she expects leisure travel to mainland China to resume around the Easter holiday.
“The positive impact of these easing measures should extend beyond international travelers,” Pang said in a note.
She said an increase in overall international travel flow will boost related industries, such as airlines, hotel stays and catering.
“The relief may also reduce the level of concern about Covid among the population, and eventually they would not perceive Covid as a big threat – it should increase mobility in the country from the first quarter of 2023 and thus also consumption.” she said.
