China pledges to stick with its strict zero-COVID policy

Since the pandemic started, China has had some of the strictest COVID restrictions in the world – also known as its zero-COVID stance. So, markets and businesses have been hoping for a while that the country might reopen to the world sooner than later. The market rallied last week as a sign of optimism that China may be looking to ease COVID restrictions.

But, over the weekend, China vowed to "unswervingly" continue its zero-COVID strategy to cope with an outbreak of local cases. After this announcement, the yuan retreated from its surge of 2% last week. Oil prices also dropped sharply, and the hope of China's higher crude demand was shattered. Even with its strict COVID measures, China just reported its highest number of COVID cases since May. The zero-COVID approach has weighed on the economy and crude market, as it's the world's biggest crude importer. Some Wall Street analysts say there's no sign of China easing the COVID strategy, resulting in a gloomy economic outlook before its annual parliamentary session in March.

Key comments:

"Previous practices have proved that our prevention and control plans and a series of strategic measures are completely correct," said Hu Xiang, an official at the National Health Commission's disease prevention and control bureau.

"Despite the denial, notions that China will pivot to living with COVID in the new year are unlikely to be quashed given the very real toll that zero-COVID is having on the economy," said Tapas Strickland, head of market economics at NAB.

"I expect there would be a reversal of the last week's gains, but I believe the stock markets are not likely to break the previous lows," said Cui Xuehua, China equity analyst at Meritz Securities Co. "The fact that rumors have spread is a positive signal that the Chinese government is internally discussing easing virus restrictions."