Amid protests over lockdowns, Goldman Sachs warns that China’s exit from COVID-zero may be ‘forced and disorderly’

A protest against China's strict zero-COVID measures on Nov. 28, 2022, in Beijing.
Kevin Frayer—Getty Images

China’s climbing COVID caseload and expanding lockdown measures, which prompted rare public protests over the weekend, highlight the risk of an unplanned and chaotic exit from the country’s tough COVID-zero policies, predicts Goldman Sachs.

A deadly apartment fire in the Chinese city of Ürümqi has sparked nationwide protests against China’s COVID controls, with videos and reports of demonstrations in cities like Beijing, Shanghai, Wuhan, and Chengdu.

In a note published Sunday, Goldman’s chief China economist Hui Shan said the investment bank’s prediction on reopening now “includes some chance of a forced and disorderly exit” from the mainland’s COVID-zero policy that seeks to eliminate every case of the virus.

Goldman puts the chances of China reopening before the second quarter of 2023 at 30% chance, the same odds it forecast earlier this month. On Nov. 11, China announced measures that slightly eased some restrictions, including reducing the combined length of hotel and home quarantine from ten to eight days for inbound arrivals. The move sparked hopes among analysts that Beijing was ready to start a long-hoped-for rollback of COVID measures, including tough inbound quarantines, lockdowns, and mass testing.

But growing public discontent with China’s COVID measures, combined with a record number of cases, may instead lead to uncertainty and mixed messages on the government’s approach. “The central government may soon need to choose between more lockdowns and more COVID outbreaks,” Hui wrote in her Sunday note.

A “forced” exit from COVID-zero may mean that Chinese officials scale back COVID controls before the country is prepared to handle the inevitable increase in cases. Surging case numbers would drag down the economy as outbreaks disrupt manufacturing and commerce, strain public health services, and encourage people to stay home—in addition to causing spikes in severe illness and death.

Goldman predicts the disruption could lead to further “downside risk” for its original projections for China’s fourth-quarter GDP. The U.S. investment bank had earlier predicted 3% year-on-year growth for 2022, far below the 5.5% targeted by Beijing. 

Hong Kong’s Hang Seng Index opened 3% lower on Monday morning, while Shanghai’s SSE Composite Index opened 1.5% lower.

COVID frustrations

China reported 40,052 new COVID infections on Monday, setting a new daily record for the fifth straight day.

Government officials are hurriedly imposing COVID control measures, such as social distancing, mass testing, and lockdowns to control outbreaks. Nomura economists now estimate that an area responsible for one-fifth of China’s GDP is under some form of lockdown.

Locked down residents have protested COVID measures. Last week, migrant workers in a major Foxconn plant in Zhengzhou—China’s “iPhone city”—clashed with security personnel due to frustrations about COVID controls, infection fears, and unpaid wages. Foxconn offered a $1,400 bonus to allow workers to return home to cool tensions. 

Yet an apartment fire Thursday evening in Ürümqi, the capital of the Xinjiang region of China, prompted the weekend’s more widespread COVID protests. Officials have subjected parts of Ürümqi to lockdown since late August. Chinese social media users suggested that COVID controls made the fire, which killed 10 people, more deadly. Protests convened to commemorate the deaths soon grew into a broader rejection of China’s COVID-zero policy. 

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