A traveler in protective gear at Shanghai Hongqiao railway station in Shanghai, China, Monday, December 12, 2022. Photographer: Qilai Shen/Bloomberg via Getty Images
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The reopening of mainland China came earlier than expected for investors, and Goldman Sachs warns it will place near-term strains on the workforce and supply chains.
According to mobility data analyzed by economists at Goldman Sachs, China is likely to “see weaker growth momentum during the anticipated ‘exit wave’ due to rising infections, temporary labor shortages and mounting supply chain disruptions,” a statement said Tuesday.
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“Amid the rapid reopening, the challenge to China’s healthcare system may have escalated significantly, particularly for less developed landlocked and rural areas amid the upcoming Lunar New Year holiday,” wrote Goldman economists, including Lisheng Wang and Hui Shan, adding that they the mainland expect China’s daily new cases to peak in late December or early January.
On Saturday, Tesla’s Shanghai factory was reported to have halted production as the company faced a fresh wave of Covid cases among its Chinese workforce. The company’s stock fell more than 10% on Tuesday, continuing to hover around the 2022 lows.
Tesla’s Asian supplier LG Chem in South Korea and China’s Contemporary Amperex Technology fell more than 3% in Asian trading on Wednesday. Japan’s Panasonic also fell slightly.
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According to economists polled by Portal, China’s factory activity is likely to have declined in December when the National Bureau of Statistics releases its manufacturing PMI on Saturday.
Economists are predicting the reading will come in at 48, below the 50-point mark separating growth from contraction and flat with last month’s level.
Short-term pressure on the medical system
Goldman Sachs added that the abrupt reversal of China’s zero-Covid policy is creating headwinds for China’s healthcare system.
“We view the new guidelines as a major step towards full reopening, but beware of the increasing challenges facing China’s medical system in the near future,” the economists said in the statement.
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“This underscores the urgency of further and faster policy efforts to promote immunization of the elderly and the supply of other medical resources,” such as intensive care unit beds, oral medications and medical staff, the statement said.
Health officials said earlier this week that the country’s intensive care unit beds and resources are nearing capacity as infections skyrocket.
Positive Outlook for GDP, Chinese Yuan
Despite near-term concerns about China’s reopening, economists have a rosy long-term outlook for China’s growth.
“Improved growth expectations in 2023 could outweigh unfavorable factors such as worsening trade balances for goods and services,” Goldman Sachs said in the statement.
The economists added that the latest developments for the reopening support the company’s earlier forecasts for China’s economy to grow 5.2% in 2023, after growing 1.7% on an annualized basis in the fourth quarter of 2022.
The latest forecast was revised in mid-December when it raised its forecast for full-year 2023 growth from an earlier forecast of 4.5%.
“While we are confident that growth should accelerate significantly when it reopens, significant uncertainties remain regarding the evolution of Covid, consumer behavior and policymakers’ responses, which in turn will limit the pace and extent of the Chinese economy’s recovery in the future.” next year,” the Dec. 16 note said.
The company added that the country’s reopening measures are also positive for the onshore yuan, adding that it expects the currency to weaken only slightly over the next year to sustain the 6.90 level against the US dollar .
Resumption of international travel
Goldman Sachs economists said the latest measures are likely to benefit growth in the surrounding region as travel normalizes.
In a Dec. 11 note, economists said Hong Kong and Singapore are likely to benefit the most, as their GDPs grew by 2.7% and 2.7%, respectively.
Taiwan, Australia and Malaysia will also see their economies expand moderately by about 0.4 percentage points, the release said.
Travelers with luggage in Hong Kong International Airport Terminal 1 on December 20, 2022 in Hong Kong, China. (Photo by Vernon Yuen/NurPhoto via Getty Images)
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Iris Pang, chief China economist at ING, said she expects holiday travel to mainland China to resume around the Easter holidays.
“The positive impact of these easing measures should extend beyond international travelers,” Pang said in a note.
She said an increase in overall international travel flow will boost related industries such as airlines, hotel accommodation and catering.
“The easing could also reduce Covid concerns among the population, and they would gradually no longer perceive Covid as a major threat – this should increase mobility within the country and thus consumption from the first quarter of 2023,” she said.