Goldman: China would maintain border restrictions in 2022

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, said Goldman Sachs Group Inc.

Reports that vaccines made by national company Sinovac Biotech Ltd. offer limited protection against the omicron variant will likely bolster China’s determination to pursue its “zero COVID” strategy, analysts led by Andrew Tilton wrote in a note Tuesday. .

China is one of the few countries in the world that is still betting on the “zero COVID” approach, while many others have come to live with the virus. Tight measures to contain outbreaks – such as Xi’an’s harsh isolation today – have led to production and travel disruptions, and a drop in consumption, adding pressure to an economy already burdened by falling oil. real-estate market.

According to Goldman analysts, quarantine requirements for overseas travelers could be maintained to avoid major disruption at the Winter Olympics, which begin next month, the annual meeting of the national legislature in March, and the 20th Party Congress. Communist in the fourth quarter. President Xi Jinping is expected to win an unprecedented third term during the party’s event, which is held once every five years.

Given that COVID-19 is likely to spread outside of China and with the party’s congress looming in the last quarter, “we doubt that policy makers will lift quarantines before then,” analysts say. “Since transmission tends to be greatest in the winter months, border restrictions may remain largely intact until spring 2023.”

China’s tough measures to contain COVID will not work as well this year as they did in 2020, said Ian Bremmer, president of political risk consultancy Eurasia Group. That means supply chain problems will continue around the world, and inflation may persist longer than people would have expected, he noted.

“The ability to live with the virus, an extremely easy-to-spread virus that is not that deadly, is the exact opposite of China’s policy of zero COVID, and zero COVID is not going to work for them. But they are going to stick with it, ”Bremmer told Bloomberg TV. “It is not primarily a virus-driven challenge, but it is one where the Chinese government cannot get out of its way.”

Beijing has pledged to shift its policy focus this year to stabilize economic growth while avoiding risks, as it warns of a triple hit of contraction in demand, a supply shock and weakening expectations.

Last month, the central bank gave a boost to liquidity by cutting the amount of cash banks must keep in reserve. Authorities have also said they will better meet what they call “reasonable demand” for homes as they work to limit the consequences of a growing debt crisis affecting the country’s real estate sector.

Goldman expects another reduction in the reserve requirement ratio in the first quarter, with easing focused on credit and fiscal measures that cushion, but do not fully absorb, the housing market slump.

Rest of Asia

The yuan could see “small additional gains” to 6.2 per dollar later this year as China maintains a “significant” current account surplus, analysts said. Also helping the Chinese currency would be strong net portfolio inflows driven by index inclusions and a possible acceleration in equity purchases by foreigners, while domestic stocks are likely to perform better this year than last, they added.

In the rest of Asia, the economic response to the pandemic is likely to focus on “living with COVID,” as headline inflation is unlikely to accelerate significantly from current levels as central banks raise interest rates. , led by New Zealand, South Korea and Singapore.

“We expect all three to toughen up even more in 2022 and be joined by many of their peers in the region,” Goldman analysts wrote. “The next group of central banks most likely to raise rates, in our opinion, are India, Malaysia, Indonesia and Taiwan.”

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