Is China’s strict Covid policy about to backfire?

China’s decision to stick with a strict Covid policy has created significant risks for the nation’s economy, which could cause pain in much of Asia.

According to S&P Global Ratings, China is an outlier when it comes to Covid management on the continent, and as a result has been left exposed.

“The country has stuck with its low-tolerance COVID strategy (which) involves strict social distancing restrictions and lockdowns,” the agency said.

“Spreading omicron infections are testing the sustainability of this policy. The possibility of rapid transmission of omicron in China is a key risk to its economy.

“Indicatively, mobility restrictions in Hong Kong amid an omicron surge have set back the territory’s economic recovery.”

S&P says it has lowered its growth forecasts across the Asia-Pacific as a result of uncertainty around China’s short to medium term future, as well as high energy and commodity prices, an expectation of Fed interest rate increases and the volatility and inflation effects of the Russia-Ukraine war.

“The risks are stacking up for Asia-Pacific’s incipient recovery,” the agency said.

“COVID cases in China are complicating the outlook for what has been healthy expansion in regional economies.

“S&P Global Ratings believes these new risks will generally present as inflation, and that they will dent an otherwise strong rebound from the pandemic.”

The agency said most Asian countries had done their best to position themselves for a strong Covid recovery.

“Most Asia-Pacific nations are moving to a stance of living with COVID, with robustly positive economic effects,” said Louis Kuijs, S&P Global Ratings’ Asia-Pacific chief economist.

“Vaccination levels are typically high. Governments and businesses have become better at adapting to outbreaks. The mood in many nations is that the pandemic is manageable, and that people can resume normal activity.”

It may be China that slows things down.