China’s Covid Pivot Accelerates as Cities Ease Testing Rules

Chinese authorities eased Covid testing requirements across major cities over the weekend as Beijing appears to be engineering a gradual shift away from its strict Covid Zero policy amid elevated cases and public protests.

The financial hub of Shanghai, which saw a gruelling two-month lockdown earlier in the year, scrapped PCR testing requirements to enter outdoor public venues such as parks or use public transportation starting Monday, city authorities said in a statement. Measures will “continue to be optimized and adjusted” in line with national policy and the local situation, according to the statement.

Hangzhou, home to tech giant Alibaba Group Holding Ltd., also dropped testing requirements to enter most public venues including offices and supermarkets and to take public transportation. Tests will no longer be required to purchase certain medicines, city authorities said in a statement.

Shanghai and Hangzhou joined other top-tier cities such as Beijing, Shenzhen and Guangzhou in relaxing curbs in recent days. Government officials over the past week signaled a transition away from the harshest Covid containment measures, which have weighed on the economy and prompted thousands of demonstrators to take to the streets to voice their anger. The easing comes after Chinese Vice Premier Sun Chunlan said last week that the country’s pandemic control has entered a new phase. Confronted with evolving challenges and tasks, the government will take small, consistent steps to optimize Covid measures, she said.

The loosening comes as China enters a downswing in its latest outbreak curve, with 29,171 Covid cases reported for Sunday, the lowest in nearly two weeks. Infection spread has come off a peak of nearly 40,000 at the end of November, which may partly be due to the scaling down in mass testing as some asymptomatic cases remain undetected. Nevertheless, China’s easing starts from a high bar: substantial testing rules remain in place, with cities requiring negative results for people to enter indoors areas like offices. Cities battling outbreaks, like Beijing, Guangzhou and Chongqing, are also still largely at standstill with schools and leisure venues shuttered.

Restrictions are also being rolled back in Zhengzhou city, home to Apple Inc.’s largest manufacturing site in China. Authorities announced on Sunday the immediate end of mandatory Covid testing to enter buses, subway, taxis and other public venues besides for those who depart from the city or go to karaoke bars and internet cafes.

Foxconn Technology Group, which manages the world’s biggest iPhone manufacturing facility, is continuing with closed loop operations, restricting workers’ movements to their dormitories and the factory, according to a notice posted on WeChat.The city of Wuhan, where the virus first emerged about three years ago, said it would end testing requirements to ride the subway while Lhasa city will resume previously halted bus operations.

Chinese stocks have rallied recently, fueled by rising optimism that China is softening its pursuit of Zero Covid. In Hong Kong, the Hang Seng China Enterprises Index surged 29% in November, capping its best month since 2003, while the benchmark Hang Seng Index posted its biggest monthly gain since 1998.

The rally was mainly driven by the gains in airlines, casinos, restaurant operators and other stocks expected to benefit from a reopening of the world’s second-largest economy. Investors are increasingly seen shifting their bets to longer-term plays such as consumer and health-care equities, from travel and catering firms whose shares have jumped sharply.

Restrictions were also eased in a number of provincial capital cities over the weekend. Kunming, in the southwestern province of Yunnan, will as of Sunday allow people to ride public transport without showing a PCR test, while Nanning in the neighboring Guangxi region scrapped such testing requirements for all public venues except hotels and tourist destinations.

In Harbin, the capital of Heilongjiang in the northeast, test results are no longer required to enter public places, while people leaving the city only need to take one PCR test within 48 hours instead of two, the local government said late Saturday.

Urumqi, where a fire that killed more than 10 people last month triggered anti-lockdown protests, reopened skiing venues and a pedestrian street on Sunday, according to state broadcaster CCTV. Hotels, restaurants, supermarkets and entertainment businesses such gyms will also resume normal operations Monday as conditions are now ripe for “normalized” containment measures, CCTV reported, citing a local government briefing Sunday. The city is also reopening a previously closed subway line.

Suspicions that Covid restrictions hampered rescue efforts in the fire a high-rise building in the capital city of the Xinjiang region fueled public anger, helping spread protests across the country as people gathered to commemorate the victims and request an end to Covid curbs.

While the easing measures in cities can’t be interpreted as China abandoning its Covid Zero policy yet, we see them as clear evidence of the Chinese government preparing for an exit, and trying to minimize the economic and social cost of Covid control in the meantime,” Goldman Sachs Group Inc.’s chief China economist Hui Shan and colleagues wrote in a note Sunday.

Experiences in Hong Kong and Taiwan showed that new cases will skyrocket upon reopening, with mobility declining sharply, they wrote. Goldman Sachs’ base case scenario suggests China’s Covid Zero policy will stay until April to allow for preparations, according to the note.