Incident: since March, the epidemic in China has further spread, with more than 1000 new confirmed cases per day.
Core view: China's epidemic has increased rapidly recently. Based on the experience of 2021, it is estimated that the current epidemic is expected to have an impact on social zero in March and 1% on GDP in the first quarter. In the future, the conditions for the comprehensive deregulation of the epidemic are not sufficient. In the short term, the probability will still adhere to the "dynamic clearing", and consumption will continue to be impacted, which will further increase the downward pressure on the economy, which also means that the policy will continue to increase. Continue to remind: the end of the policy is now, and the economic bottom and market bottom will be formed one after another, but it will take time. Two major concerns in the short term: 1) supporting policies of various ministries and commissions to stabilize growth and expectations, among which the reduction of reserve requirements and interest rates from January to February can still be expected; 2) All localities have a high probability to further relax real estate and focus on the first and second tier cities.
1. The recent epidemic situation in China is the most serious since March 2020, which will seriously impact consumption and economy. Since the beginning of winter in December last year, the epidemic in China has continued to break out in scattered areas, with an average of 3500 new diagnoses per month; Since March, the epidemic has further spread in China. As of March 21, the monthly cumulative diagnosis has exceeded 22000 cases, a new high since March 2020. There are medium and high-risk areas in 21 provinces, and more than 100 new cases in 19 provinces in the first quarter. From historical experience, the number of newly confirmed cases is significantly negatively correlated with consumption and GDP growth, and the impact of the recent epidemic is expected to be very significant.
2. Referring to the epidemic situation in 2021, it is estimated that this round of epidemic situation will have an impact on consumption of about 3% in March and GDP of about 1% in the first quarter.
Step 1: according to the epidemic impact and epidemic prevention measures of each city in 2021, the impact on each city is divided into high, medium and low levels, and the impact of the epidemic is measured by the difference between the social zero and GDP growth rate of each city and the whole country during the epidemic period:
High intensity impact: the epidemic is the most serious, the city is completely closed, the consumption impact is more than 30%, and the GDP impact is nearly 5%. Taking the epidemic situation in Xi'an, Shijiazhuang and Yangzhou as an example, it lasted an average of 35 days, with more than 1000 cases diagnosed, and nearly 50 medium and high-risk areas. Measures such as closing cities and closing all communities were taken; The average impact of the epidemic on social zero in the current month was 33.8%, and the average impact on GDP in the current quarter was 4.8%.
Medium intensity impact: the epidemic is serious, some areas are closed, the impact on consumption is about 7%, and the impact on GDP is about 2%. Take the epidemic situation in Nanjing, Xiamen and Guangzhou as an example. It lasted an average of 26 days, with more than 200 cases diagnosed. There were about 20 medium and high-risk areas, and only some areas were closed. The average impact of the epidemic on social zero in the current month was about 6.9%, and the average impact on GDP in the current quarter was about 2.0%.
Low intensity impact: the epidemic is mild, some areas are closed, the impact on consumption is nearly 2%, and the impact on GDP is nearly 1%. Take the epidemic situation in Zhengzhou, Ningbo and Hangzhou as an example. It lasted for an average of 18 days and was diagnosed with less than 200 cases. There were only 3 medium and high-risk areas on average, and only individual areas were closed. The average impact of the epidemic on social zero in the current month was about 1.8%, and the average impact on GDP in the current quarter was about 0.8%.
Step 2: combined with the above standards and the current division of the actual epidemic prevention measures in various cities, the impact of the epidemic in the first quarter of this year is estimated: more than 40% of the consumption in the first quarter and more than half of the GDP are impacted by the epidemic. It is expected that the current round of epidemic will have a zero impact on the society in March and a 1% impact on the GDP of Q1. As of March 21, a total of 74 cities across the country had experienced medium and high-risk areas in the first quarter. 8 cities such as Shenzhen and Jilin were high-intensity cities, 18 cities such as Beijing and Shanghai were medium intensity cities, and the remaining 48 cities were low-intensity cities; The total social zero accounted for 40.9% and GDP accounted for 50.7% in the three types of cities. According to the above impact intensity calculation, the impact of the current round of epidemic on the social zero growth rate in March was about 3.1% and the impact on GDP was about 0.9%.
3. The conditions for China to fully relax the control of the epidemic are not sufficient, and the probability will still adhere to the "dynamic clearing" in the short term.
China's vaccination rate has exceeded 90%, but the vaccination rate of booster needle is only 40%, and the vaccination rate of the elderly is lower. According to the central disease control data [1], as of March 4, 40.7% of the country's population had completed booster vaccination, the booster vaccination rate of people over 60 was less than 40%, the basic immunization rate of the elderly in 11 provinces was less than 80%, and the risk of severe infection was high.
The mortality rate of Omicron virus is low, but China's population base is large, and the absolute number of deaths after full liberalization is too high. Since March, there have been about 1000 daily deaths in the United States. Based on the population of 330 million, the mortality rate is about 0.03 per 10000 (0.01-0.02 per 10000 in Germany, France and Japan); However, the epidemic situation in Hong Kong, China has increased rapidly recently, with an average daily death rate of about 250 cases. According to the population of 7.5 million, the mortality rate is about 0.3 per 10000; If calculated according to the proportion of Europe, America, Japan and Hong Kong, China, if China fully liberalizes epidemic prevention and control, the average daily death cases may be between 3000 and 46000.
Many covid-19 drugs in China are in the process of research and development, but it still takes time to land. On March 17, vv116, the only covid-19 small molecule drug approved to enter the clinical trial in China, released the phase I clinical data for the first time. The trial effect is good. It is expected to submit the new drug listing application in the second half of this year [2], but it will take time before it is applied on a large scale.
Follow up deduction: in the short term, on March 17, the general secretary stressed in the Standing Committee of the political bureau that "we should adhere to scientific, accurate and dynamic zeroing to curb the spread of the epidemic as soon as possible"; According to the prediction of central disease control experts and the epidemic prediction team of Lanzhou University, the current round of epidemic is expected to be controlled in April [3]. Looking back, taking into account the factors such as the further improvement of vaccination rate, the gradual implementation of covid-19 drugs and the continuous optimization of covid-19 treatment scheme, although the "dynamic reset" will still be the overall requirement with a high probability, it should also minimize the impact of epidemic prevention and control on the economy as much as possible.
4. Consumption will be impacted again, the downward pressure on the economy will increase, and the steady growth policy still needs to be strengthened. Consumption is already in the doldrums, and the superposition of the impact of the epidemic again will further increase the downward pressure on the economy, which also indicates that it is more difficult to achieve the GDP target of about 5.5%. It continues to be suggested that the steady growth policy is expected to continue to increase, and the core means is "releasing water, real estate and infrastructure".
Risk tip: the epidemic situation worsened more than expected, and the policy implementation was less than expected.
