Goldman Sachs with the note:
The number of Covid cases in China jumped in late December, with Shaanxi province the new epicenter. Although China has not yet reported any local infections linked to Omicron, markets have been increasingly concerned about the potential impact if the highly transmissible variant enters China and leads to further restrictions. In this note, we discuss the likely Covid policy response by Beijing and the potential impact on growth under different scenarios.
Beijing’s zero-tolerance Covid policy (ZCP) has clear economic costs and such costs appear to be increasing over time as each new variant is more transmissible than the previous ones, an increasing number of major economies shift to “live with Covid” (LWC), and permanent damage may take place in some services industries after two years of ZCP. At the same time, the costs for China to LWC may be even higher given the large population and the low vaccine efficacy. In addition, some political considerations probably tilt the decision further in favor of keeping the ZCP. Therefore, we expect Beijing to maintain its ZCP through at least late 2022.