China Economy

China tries to shake off the worst of the pandemic in a long, zero-Covid journey

Key Points
  • After a surge of omicron cases across the country since March, the nationwide daily Covid case count has fallen to well below 50, according to official data.
  • "Our high-frequency trackers suggest that barring another severe Covid resurgence and related lockdowns, mobility, construction and ports operation could recover to pre-lockdown levels in around one month," Goldman Sachs China Economist Lisheng Wang and a team said in a report Saturday.
  • In a significant step toward normality, the capital city of Beijing allowed most restaurants to resume in-store dining Monday, after a hiatus of about a month.
A handful of tourists visit the normally packed Yuyuan Garden during the Dragon Boat Festival holiday on June 4, 2022, in Shanghai, where authorities are allowing a return to normal life and business activity.
Vcg | Visual China Group | Getty Images

BEIJING — China is starting to show signs of recovery from the latest Covid shock.

In a significant step toward normality, the capital city of Beijing allowed restaurants in most districts to resume in-store dining on Monday — after a hiatus of about a month. Most other businesses could also restore in-person operations.

The southeastern metropolis of Shanghai, which was locked down for about two months, pressed on with a reopening plan that kicked off last week. Residents flocked to camping sites and local parks over the long weekend holiday that began Friday, according to travel booking site Trip.com.

As people returned to work on Monday, a traffic congestion tracker from Baidu showed heavy traffic in Beijing and Shanghai during the morning commute — versus light traffic a week earlier. Both cities also relaxed the frequency of virus tests to three days from two.

After a surge of omicron cases across the country since March, the nationwide daily Covid case count has fallen to well below 50, according to official data.

The unsynchronized lockdowns and reopenings across major cities suggest that China's ongoing post-lockdown growth recovery should be less steep than the V-shaped one in spring 2020.
Goldman Sachs

Under China's "dynamic zero-Covid policy" mandate, local authorities have used strict travel bans and stay-home orders to control the virus. Those restrictions disrupted supply chains and other business, sending retail sales and industrial production falling in April.

"Our high-frequency trackers suggest that barring another severe Covid resurgence and related lockdowns, mobility, construction and ports operation could recover to pre-lockdown levels in around one month," Goldman Sachs China Economist Lisheng Wang and a team said in a report Saturday.

However, businesses in the service sector that involve close human contact would find it challenging to "achieve a full recovery any time soon," the report said. "The unsynchronized lockdowns and reopenings across major cities suggest that China's ongoing post-lockdown growth recovery should be less steep than the V-shaped one in spring 2020."

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Goldman's analysts pointed to the absence of growth drivers such as exports and real estate, and greater economic costs for controlling a Covid variant more transmissible than the one in 2020.

Real estate accounts for more than a quarter of China's GDP, according to Moody's.

During a press conference last week, People's Bank of China Deputy Governor Pan Gongsheng gave little sign of additional large-scale support for the sector. He noted how the pandemic restricted real estate construction and sales. But he emphasized Beijing's policy of limiting speculation in the sector, and described authorities' latest moves to relax some curbs on real estate loans.

Sluggish recovery

Data from last weekend's holiday, called the Dragon Boat Festival, added to indications that the economy won't be snapping back to growth anytime soon.

The long weekend movie box office of 178 million yuan ($26.75 million) was the worst Dragon Boat Festival performance since 2012, excluding the worst of the pandemic in 2020, according to ticketing site Maoyan.

Spending on domestic tourism during the holiday this year dropped 12.2% from last year, to 25.82 billion yuan ($3.88 billion), according to the Ministry of Culture and Tourism.

But for the calendar year, it marked an improvement from May. The nearly $4 billion figure was about two-thirds the spending during the same holiday in 2019. That was better than the recovery to 44% of pre-pandemic levels during a longer holiday in early May, while Shanghai was still locked down.

In the last week, business survey data for manufacturing and services in May showed recovery from April lows. But the data, known as the Purchasing Managers' Index (PMI), remained in contraction territory.

The contraction rate is similar to that between February and March, said Bruce Pang, head of macro and strategy research at China Renaissance. He said that since April's economic indicators declined, the latest figures show the pandemic's impact remained in May and the economy remains in its most severe situation since the second quarter of 2020.

The PMI data showed continued declines in business plans for hiring.

Pang noted that uncertainty about future income, as well as quarantine risk for travelers, weighed on tourism spending during the latest Dragon Boat Festival.

Even if much of Beijing and Shanghai are not officially locked down, specific apartment buildings or neighborhoods can remain closed off due to contact with Covid cases.

Not all businesses have resumed work either. Shanghai Disney Resort has been closed since March 21. Universal Beijing Resort has been shut since May 1 until further notice.

Disclosure: NBCUniversal is the parent company of Universal Studios and CNBC.