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China’s record COVID outbreak is dragging down its economy. But an earlier-than-expected peak could leave some room for optimism

January 6, 2023, 10:26 AM UTC
Updated January 6, 2023, 10:45 AM UTC
China will stop requiring quarantine for international arrivals this Sunday, ending one of the last remaining, and most visible, elements of its abandoned COVID-zero policy.
Noel Celis—AFP/Getty Images

Hello from Hong Kong. Nicholas Gordon here, filling in for Alan.

This Sunday, China will stop requiring international arrivals to go into quarantine, ending one of the last remaining—and most visible—elements of Beijing’s “COVID-zero” approach to the pandemic.

Chinese authorities are sticking to a rapid reopening despite a massive surge in COVID cases, likely numbering into the tens, if not hundreds, of millions. Chinese households are snapping up cold, flu and now diarrhea medicine in a bid to protect themselves, leading to shortages at drug stores.

No one knows the true extent of the country’s COVID outbreak. “It is only after the wave when we can calculate the case fatality rate and death rate more accurately,” the head of the National Health Commission’s COVID response team told reporters last week

One model from Airfinity, a U.K.-based research firm, puts daily infections at 2.5 million and daily deaths at 16,600. In late December, one health official estimated that the country saw as many as 37 million infections in one day, and that 250 million were infected in the first 20 days of December alone.

Foreign governments are worried that an uncontrolled outbreak could lead to a new immune-evasive COVID variant. The World Health Organization this week said that it wasn’t seeing any new strains in Chinese data—yet also said that the official data was minimizing hospitalizations and deaths.

Yet some data suggest that China’s COVID surge could be peaking in major cities. Subway attendance in major Chinese cities are up from lows in December, implying that people are feeling well enough—or safe enough—to go back to work. 

An earlier-than-expected COVID peak could mean less disruption to supply chains caused by sick workers. (Chinese officials have also encouraged people to return to the office, even if they have mild symptoms).

“I believe the overall supply chain should be stabilized by next March or April” due to Beijing’s fast reopening, Nio CEO William Li told Bloomberg earlier this week. 

Now Beijing has to turn its attention to the economy, battered not just by COVID, but also by the government’s crackdown on private companies. Both manufacturing and services activity shrank in December as China’s COVID cases skyrocketed, according to official Chinese data. Services, in fact, shrunk at their fastest rate since February 2020, the very beginning of the COVID pandemic.

China’s policymakers promised to focus on growth and domestic demand in a mid-December meeting, and the People’s Bank of China said Wednesday it would use “forceful” monetary policy to support the economy. 

Investors are optimistic that China’s economy has turned a corner. Hong Kong’s Hang Seng Index is up 6.1% since trading began this year, the strongest start since 1999. The NASDAQ Golden Dragon China Index, which tracks Chinese companies traded in the U.S., is doing even better, up 10.3% so far this year.

More news below.

Nicholas Gordon
@nickrigordon
nicholas.gordon@fortune.com

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This edition of CEO Daily was edited by Nicholas Gordon. 

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