China’s move to ease Covid travel restrictions raises hopes for global economy | Chinese economy

China’s decision to relax rules for entering and exiting the country, the world’s second largest economy, has given investors hope that it will mitigate the toll of higher interest rates on global stock markets and supply chains amid the bleak outlook for 2023 might unlock.

Chinese authorities said late Monday that from January 8, those entering the country would no longer have to quarantine upon arrival. The announcement was the latest in a series of steps to reopen the country, home to vital global supply chains and 1.4 billion people.

Analysts at Goldman Sachs, a US investment bank, believe the impact will be positive for the economy overall, despite the strain on Chinese healthcare systems from a surge in Covid cases.

The moves to ease the movement of people in China domestically and for inbound travel support the investment bank’s expectation for GDP growth of over 5% in 2023, ahead of some Wall Street rivals.

“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 bank said in a research note published on Tuesday.

Shanghai Airport, Macau’s casinos and Chinese domestic and international airlines are likely to benefit from the travel boost from the lifting of restrictions, it said. Regional economies like Thailand, which also play a crucial role in global supply chains, are likely to benefit from Chinese business travelers and tourists.

According to data from the Chinese travel platform Ctrip, searches for popular cross-border destinations increased tenfold within half an hour after the quarantine news broke on Monday evening.

A delivery man sorts packages at a JD Express station in Beijing, China. Photo: China News Service/Getty Images

The latest easing comes after signals from the Chinese regime in recent weeks that it would end strict measures on quarantine, testing and travel. Lockdowns have wreaked havoc on global supply chains, causing long delays for products ranging from iPhones to cars.

Previous statements by the regime about reopening plans had already boosted the outlook for some of the world’s top fund managers, according to a Bank of America (BofA) survey.

Expectations for higher growth in China rose to around three quarters from just 13% in November. The proportion expecting the global economy to slow down fell slightly to 69% from 73% in November.

“The easing of recessionary expectations was likely driven by an improved outlook for China’s growth,” BofA said.

The increased pace of restrictions being lifted in China comes as UK stock markets are poised to reopen on Wednesday after being closed for the Christmas holidays.

US stock indexes were subdued amid thin holiday trade on Tuesday, daunting hopes of a year-end rally. In China, the Shanghai Stock Exchange rose 1% and the CSI 300 Index, which consists of the 300 largest companies listed in China’s major financial centers of Shanghai and Shenzhen, rose 1.15%.

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Investors are likely to hold onto any small improvement in the outlook at the end of 2022 after a poor year for global financial markets.

Despite this, they may still be overly optimistic about the prospects for riskier assets like developed market equities, according to analysts at Capital Economics, a financial advisory firm.

“Investors seem to have become increasingly committed in recent months to our view on inflation, which is that next year it will fall very quickly in the US and more slowly elsewhere,” Thomas Matthews said in a note to clients.

That means they expect the US Federal Reserve and some other major central banks to scale back rate hike plans.

“Unlike us, however, investors still seem to expect this to be achieved without a major slowdown in growth,” he added.

US credit spreads, a measure of the risk of borrowing in a market, suggest investors expect US companies to do relatively well over the next year. A number of reports from corporate analysts in developed countries still suggest that some major economies may emerge from recession.

While Capital Economics and investment banks, including JP Morgan, believe these measures signal too much positivity and that recession will hit the US in 2023 and 2024, Goldman Sachs disagrees.

“Our least consistent forecast for 2023 is our call for the US to avoid a recession and instead continue toward a soft landing,” read a Dec. 26 note to customers.