Hopes of a rapid rebound in growth may not be realistic as China struggles to deal with the chaos of a rapid reopening
The immediate implication on businesses will be staff absences. In fact, this is already happening. Many employees are falling sick and quarantining at home, disrupting companies’ daily operations, e.g., leaving customers unserved and delaying projects. Factories may have to continue to operate using the “closed-loop” model and are thus less able to manufacture at planned, consistent levels. Consumer brands, if unlucky, may need to close in-person shops altogether due to staff shortages.
The impact of staff absences will extend to the entire value chain of a business, leading to potential disruptions to logistics and supply chains. As more and more truck drivers are infected and unable to drive for a week or more, transport of goods will be disrupted, which will, in turn, make it more difficult for firms to stick to production plans. The same can be said about delivery drivers, who have played a critical role in keeping people fed during lockdowns. Their absence will be another missing cog in keeping the wheel of the economy turning.
As a result of these unpredictable disruptions, businesses may be forced to go back to the drawing board to reassess their revenue projections for next year. Firms will have to build substantial flexibility into their forecasts and focus heavily on managing inventories, accounts payable, and accounts receivable.
- In just a matter of days, China surprised the world by quickly dismantling the key pillars of its hallmark zero-COVID approach that have been in place for nearly three years.
- Mass testing for most people is no longer required, nor are digital codes needed. The e-travel card system was discontinued altogether.
- Those who are infected, and their close contacts, will no longer be taken to government-run, centralized quarantine facilities. Instead, they are allowed to self-isolate at home.
- As China reopened suddenly, there has been a surge of positive cases across the country. In large cities such as Beijing and Shanghai, people are flooding into hospitals seeking treatment. However, the official number of infections has fallen considerably, because few are getting tested.
- Ill-prepared for the sudden reopening, ordinary people have been panic buying medicines for fever and flu, as well as stocking up on food at home, so they can stay indoors to avoid getting infected. As a result, many pharmacies have run out of medicines.
- The first signs of healthcare systems being swamped are appearing, with doctors and nurses revealing that some hospitals are already running short of human resources due to the rising number of patients and the fact that more and more medical staff are getting infected.
China’s U-turn on zero-COVID policies, particularly the pace and intensity, has caught many people and businesses off guard. FrontierView was likewise surprised at this dramatic reversal and is increasingly concerned about how China can cope with the already-rapid surge in cases. China’s healthcare system is underdeveloped compared to those in many Western countries, and its elderly population, especially those ages 80 and older, are not well protected due to very low vaccination rates. A premature reopening exposes the most vulnerable to the virus, and if hospitals are overwhelmed, there could be a high number of unnecessary deaths. Should this happen, it is possible that Chinese leaders will be forced to reimpose some type of restrictions in order to reduce the pace of the infections.
The upcoming Chinese New Year, which is only a few weeks away, is further complicating the situation. Traditionally, more than 1 billion trips will be made in the country around the new year holidays, as Chinese people go back to their hometowns to spend time with family and friends. The travel period this year, however, could become a super-spreader event and put extra pressure on healthcare systems in smaller cities and rural areas, which are even less prepared for an outbreak. Whether China is able to withstand this exit wave will be critical to its economic recovery next year, and the level of uncertainty will remain high for at least the next few months. The dividends of a reopening, as many have hoped for a while, are unlikely to materialize anytime soon.
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