Technical Analysis

China takes the final step to embrace living with Covid

Starting from 8 January next year, China will reopen its borders and lift quarantine measures as they are set to label Covid as a disease that only requires “necessary treatment and measures to curb the spread”. That will officially put an end to their zero-Covid policy – which has been in place for roughly three years already now.

It’s a change in the times and how things progress will have significant implications globally. For now, the spread of infections will still somewhat limit China’s “openness” but give it a few months, and we’re likely to see normalcy resume.

The biggest impact will likely come from the lifting of border restrictions, which is likely to see consumption activity increase drastically. We already saw how travel-deprived the rest of the world has been and upon the slow reopening over the past year-and-a-half, tourism has not died down whatsoever.

Now, China travellers will be the ones having to play catch up and that pent-up demand will also show up in other parts of the world.

It’s a boon for the global economy but it could also result in inflation pressures keeping that little bit higher, depending on how consumption activity rolls out in the months ahead.

The easing of supply disruptions has also been a welcome development and with China’s approach moving forward, we are not likely to see any major hiccups to supply chains and shipping as well – barring another major outbreak in key cities.

For markets, the most significant thing to watch out for is how does all this impact the inflation outlook for next year. It could be a subtle driver, but China demand could very well just add that little twist on how things are going to look like in 2023.

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