With Beijing recently tweaking the nation’s zero-Covid policy, there is more optimism in the air that a reopening in China may finally be just around the corner. What say the banks?

Earlier this month, health officials in China delivered some positive news about refinement of the country’s zero-Covid policy with the pledge to avoid excessive interruption to public life. Some of the changes include the scrapped requirement by local governments to track certain civilians affected by the virus. 

While authorities have insisted that they will persist with the dynamic zero-Covid policy, any path towards a reopening has the potential to act as a catalyst for economic recovery. Global financial institutions stand to benefit not only from improved risk appetite and market performance but also from greater operational ease to conduct cross-border business. 

So, what say the banks? 

Q2 Consensus

While it remains to be seen what path of loosening will be pursued, most banks are calling for some form of reopening to begin around the second quarter of 2023. 

According to a Goldman Sachs research note, a zero-Covid exit could likely occur soon after China's «Two Sessions» – a key annual meeting with the country’s top legislature and political advisory body – with a 60 percent probability placed on a reopening in the second quarter and a 30 percent chance for an earlier move.

A handful of other global banks are forecasting a similar timeline towards the end of the first quarter or early second quarter, including J. Safra Sarasin and Credit Suisse, which added that mainland China’s reopening is expected to «lag that of Hong Kong by six months».

2024 Reopening?

Despite the optimism, banks are also preparing for the possible materialization of worst-case scenarios.

UBS, for example, forecasts a full reopening in the early part of the third quarter as its base case but on the downside scenario, it predicts that a China reopening could be delayed to 2024.

«[A]ny shift would hinge on a few essential conditions, including sufficient vaccination coverage, treatment drug availability, and a global scientific consensus on the pandemic,» added HSBC in a research note. «To be clear, we do not expect any major policy shifts in the near term.»