COVID policies have scarred Chinese economy: Natixis

September 30, 2022

HONG KONG -- China's zero-COVID restrictions may slash more than two percentage points off national growth in 2022, according to a report by Natixis.

The Government has altered its COVID policy to a more targetted approach to minimise the impact on economic growth after the lockdown in Shanghai, Natixis says.

Restrictions on cross-region transport have been moderately eased in recent months in a bid to improve goods transportation and supply chain operation.

"In this regard, our data shows a clear improvement in cross-region mobility since the Shanghai lockdown," Natixis says.

"The index has increased by nearly one third from the end of May to August (average). Even within the week from late August to early September, when the number of medium- to high-risk COVID areas rose significantly (from 2,684 to 3,170), China's cross-region mobility measure was only slightly down by 2.5%, which is much milder than during the Shanghai lockdown.

"The milder impact on the economy was also due to the fact that regions hit more by the COVID in the recent round of outbreaks are also those with relatively lower weight for the Chinese economy -- namely, the less-developed regions."

Natixis says that, between mid-July and the end of August, the average local subway transportation index of 24 major Chinese cities dropped 17.4%.

"The decline in intra-city subway mobility reflects the reality that fewer people were going out for consumption due to COVID policies, which is particularly worrying for China's local service growth.

"For Q3, the estimated reduction in GDP YoY growth is 1.1% versus Q3 2021. If we assume COVID-related mobility restrictions in Q3 remain similar for Q4, the overall reduction in China's GDP growth in 2022 could be 2.3%."

Natixis says an important element is investor sentiment, which is difficult to gauge because there are other investor shocks -- such as real estate woes - impacting sentiment.

From a long-term perspective, Natixis says, the COVId-19 outbreak may have already caused scarring effects on the Chinese economy, and that investor sentiment may take time to recover, even if mobility restriction ease. (ATI).