China has Moved to a “Living with COVID” Initiative; what does it Mean for Forex? – Moneycontrol

China started a zero covid policy in the aftermath of the first transmission of COVID-19. In January 2020, the Chinse government suspended travel from Wuhan, the city that initially experienced the first transmissions of the virus. China was fortunate that the lockdowns implemented by the government brought the transmission of the virus to near zero. China had similar success with the lockdown in Hubei province, which empowered the government to use a policy of lockdowns to stifle the spread of the COVID-19 virus.

During the following years leading up to December 2023, the Chinese government allowed a reopening of the economy followed by lockdowns on successive dates. Natural wide protests finally broke out in November 2022 as citizens became discontent with the zero-COVID policy and the resulting economic fallout. The lack of success with the zero-COVID policy is a black eye for the Communist Party and President Xi. The government has now switched to a living with COVID policy which is likely to see waves of breakouts of variants as the government struggles to contain the spread of the virus.

The COVID policy was Expected to be a Success

Xi Jinping began his second decade of power in China in 2022 and is expected to bring China back to economic greatness. As the calendar turned to 2023, what is clear is that the Chinese government under Xi’s rule has experienced economic weakness generated by the government’s zero-COVID- policy inflicted on Chinese citizens. The dark days of 2022 followed the success of the Chinese winter Olympics which showcased the success of the zero-COVID policy by creating a bubble that kept the virus at bay. What is clear is that it is a lot easier to handle a bubble for two weeks than the entire Chinese population over a year. The strict mandate employed by the Chinese government on their citizens was awful. In 2022, unprecedented waves of infections have swept through the country. The zero-COVID policy was not working, and economic stagnation was occurring because of the policy’s limitations.

The Lockdowns

In March 2022, Omicron, a variant of the original virus, swept through Shanghai despite a zero-COVID policy. China was battling the worst outbreak since the initial wave that occurred at the end of 2019. Shanghai was locked down for two months and became a symbol of the failure of the zero-COVID policy. The economic costs were severe while the pandemic continued to rage. In the country’s most affluent areas, there were food shortages and a lack of emergency medical care. The lockdown hit GDP, which contracted by 2.6% in the June quarter, while youth unemployment hit 20%. Despite these issues, the government refused to back down and doubled its policies.

Failed Direction

During Q2 2022, the government sought to increase quarantine facilities instead of vaccinating the elderly and enhancing intensive care unit capacity. Their policy continued to fail, and during October 2022, the government reported thousands of new Omicron cases daily. During the opening of the new party Congress, Xi gave a speech boasting about the communist party’s COVID policy.

The People Spoke

The idea that China could put down the virus using a lockdown process was ill-planned. People traveling away and to China continued to carry the virus, and despite all efforts, it would spread. Living with a covid policy created by the West in conjunction with vaccines allowed commerce to rebuild.

In China, public anger erupted across the country. The anger spilled over to a scale not seen in decades. Crowds gathered to call for the end of the lockdowns and the regular Covid tests. As the protests were taking place, the country was notching up daily record infections exceeding 40,000, and the lack of commerce was creating a situation where local governments were running out of money to pay for the huge lockdown bills.

An Overall of the Covid Policy

On December 7, 2022, the Chinese government reversed its policy, removing the lockdowns and testing and allowing citizens to isolate at home, abandoning the zero-Covid policy. The reversal leaves China in a poor economic state. They need to increase commerce and attempt to return to normal, accepting high levels of COVID spread. They will also need a strategy to spend money to contain the virus without lockdowns. One of the biggest issues related to this scenario is ego. Xi believed his zero-COVID policy would be heralded worldwide. Instead, it was an utter failure. Even worse, he now has to decide how he will spend money choosing a new policy.

When living with Covid, a nation needs to protect its elderly. Covid takes many forms, and most individuals can survive with exposure through mRNA vaccinations. On December 11, China finally started to approve mRNA vaccines. The move comes two years following the first approvals of mRNA vaccines in the rest of the world. The first batch from BioNech, which partners with Pfizer, is to be administered to German expatriates living in China. The vaccinations are expected to be delivered to German companies in China and the embassy.

The upshot is there is a caveat, and the Chinese government does not want to allow mRNA vaccines to its population. The world has learned from the current mRNA vaccines that the protection is not against getting the virus its against getting terminally ill. The vaccines are targeted toward the original strain and the Omicron variant. By vaccinating the elderly, China can avoid thousands of deaths due to the virus.

China is stalled between rising COVID-19 cases and declining vaccination rates. China will not use western shots and has developed nine domestically created vaccines for use. None of these vaccines are updated to target the Omicron variant. Most developed countries have access to boosters from either Pfizer or Moderna.

The Path to a Healthier Economy

The path to a healthier economy goes down two roads. The first is the ability of the supply chains to rebound in the wake of the recent lockdowns. In the United States, millions of workers left the job force in the wake of the pandemic. The United States continues to struggle to get people to work. China might also find that getting people to come back to work, especially in specific regions, might be difficult in the wake of the lockdowns. For example, rural workers who leave the city have lockdowns persist and might remain at home in rural areas.

Once the supply chain is rectified, which could take an extended period, China will need to control its COVID spread. If people become very sick, they will need to take days or weeks off from work which could further constrict the expansion of growth. Economic malaise could set in as regions continue to relax their COVID restrictions.

How Has Covid Impacted Forex

These issues have weighed on the Chinese economy while the U.S. economy remains upbeat. Interest rates have declined in China while they have increased rapidly in the United States, buoying the U.S. dollar versus the Yuan. The move has altered the dynamic in the forex trading market. What is forex trading? It’s the exchange of one currency for another and provides a marketplace for investors to hedge and speculate about the direction of a country’s fiat currency.

The Bottom Line

China is entering a new phase of its existence called “Living with Covid.” The country has been on lockdown at some stage since the COVID-19 virus started to spread in January 2020. The extended quarantine was a conscious decision by the Chinese government to create a zero-COVID policy. The county’s Covid policy was successful during the Olympics, which allowed China to host despite the pandemic. The policy created a bubble that worked for two weeks but was interpreted to mean it could work for all of China.

The Chinese leader continues to reject western vaccines, which have proven successful in other parts of the world. While China has more than 9-different vaccines, none have been altered to deal with the Omicron variant. China has finally relented on some mRNA vaccines that it will allow. German nationals living in China have been permitted to take a Pfizer vaccine.

While this is a great first step for China, the lack of protective vaccines will likely generate a huge wave now that the zero-COVID policy has been halted. After weeks of protests about the zero-Covid policy, the Chinese government finally relented and pivoted to a “living with Covid” policy. The new policy will be greeted by the Chinese, who were fed up with the government policy. Looking forward, the Chinese will need to heel supply chain issues which are a byproduct of lockdowns. Unfortunately, without mRNA vaccines, heeling the economy will likely coincide with COVID-19 waves.

Moneycontrol journalists were not involved in the creation of the article.