• China’s reopening will bring forward the economic recovery led by household consumption, albeit in fits and starts.
  • A surge in sick people and fear of infection may cause intermittent labour shortages and add to global supply chain pressures. But we consider any supply chain disruptions will be short-lived.

For almost three years, China contained the spread of covid through mandatory quarantine, mass testing, city-wide lockdowns and closed international borders. This 'zero covid' policy caused high economic costs. The zero covid policy is now over in all but name.

Since the release of the 10 new covid guidelines on 7 December 2022, the central government has ended mass PCR testing and large-scale lockdowns. Positive covid cases are now allowed to quarantine at home. Quarantine requirements for inbound travellers have also been scrapped.

Importantly, President Xi Jinping has declared victory on covid. In his New Year’s address in late December, President Xi said China had overcome unprecedented difficulties and is entering a ‘new phase’ in its approach to covid.

China’s healthcare system was not ready for a sudden reopening. Covid infections and deaths have reportedly skyrocketed. A surge of sick people and fear of infection will likely further disrupt China’s economy and global supply chains, at least in the next few months.

Nevertheless, barring a return to strict zero-covid measures, a peak in the current wave of infections will likely kick-start a sustained economic recovery led by higher household consumption. The pick-up in mobility suggests a recovery has started though it may be subject to set-backs (charts 1-3 accessible in the full report).

Read the full report.

CBA’s Global Economic and Markets Research (GEMR) team publishes a wide range of economic and financial research each week covering the latest data, trends, policy developments and topical issues in Australia and other major economies. To access these publications please visit the GEMR website.

Our Economic Expert

Carol Kong - analyses and forecasts trends in Australian and major international economies to draw implications for central banks' policy interest rates and currencies. Prior to joining Commonwealth Bank, Carol worked as a Risk Analyst Intern at Attradius. She holds a Bachelor of Commerce/Economics (Finance, Economics and Financial Economics) and a Bachelor of Economics (Honours) from the University of New South Wales.