Where is China heading to

China’s cyclical recovery outlook hinges critically on developments in Covid-19 policy. Housing will become less of a drag as the sector manages an L-shaped landing. In the long run, China faces multiple structural headwinds. It will be difficult for it to maintain the miraculously high growth it experienced in the past.

The just concluded Party Congress proved markets wrong once again. China’s reopening is not attached to any single political event, although there were extra travel restrictions before the Congress, most of which will be reversed before year-end.

The Party Congress did not directly address the issue of reopening, but, in an interview days before the Party Congress, public health expert Liang Wannian said there is no timeline for exiting zero-Covid-19 controls. Based on lessons from Singapore and Taiwan, high vaccination rates do not offer perfect protection against Covid-19. Deaths and strained hospitals could still be a consequence to deal with. In this regard, we have low conviction predicting when China will reopen fully.

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