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Businesses in China prepare to adapt to the lifting of Covid restrictions

China started 2023 fully opening its borders, with no travel restrictions or quarantine measures for arrivals and lifting most Covid-19 restrictions, after months of strict lockdowns, mass testing and infected people isolated at home or under quarantine at government facilities.


For more than two years, China had one of the toughest anti-Covid regimes in the world - known as its zero-Covid policy. However, after recent protests, lockdowns were scrapped, and quarantine rules have been abolished.


A negative Covid test is no longer required to enter public transport, restaurants, gyms, and other public buildings (with the exception of orphanages and care homes).


The business community has long been awaiting the reopening of the Chinese economy. But a surge in Covid cases may continue to disrupt in the short term the supply chain and business operations. Companies should be prepared to face larger numbers of Covid cases in their workforce and mitigate risks.


Chinese authorities have been criticized by the international community for suddenly lifting restrictions, while many countries have imposed Covid testing on visitors from China.


Though businesses have welcomed the policy change, living with COVID poses its own risks and difficulties, which may continue to hamper recovery in the near future.


A study by Peking University estimated that as of January 11th, some 64% of the population were reported to be infected with the virus.


Last January 8, all travel restrictions were lifted enabling international tourism, family reunification, and business travel. While this was great news for most businesses, it may take some time for things to return to normal.


Under China’s zero-Covid policy, the government implemented a variety of prevention and control measures to maintain the total cases as close to zero as possible. These measures included centralized quarantine for Covid-positive people, as well as anyone who had come into close contact with them, lockdowns of buildings and housing where Covid cases were reported, routine PCR testing, and restrictions on travel and movement, among others.


Since the outbreaks from spring of 2022, many cities required residents to show a negative PCR test before being allowed to enter any public space, including offices, restaurants, parks, and public transportation. The use of “check-in” QR codes to confirm test results became common practice.


The policy was successful, mainly through the help of technologies such as the health and travel codes that record people’s health status, and a large number of frontline workers and volunteers to carry out testing and ensure strict compliance with the rules and restrictions.


In 2022, the much more transmissible Omicron variant caused a significant increase in cases, leading to strict lockdowns in many cities and regions. By fall, almost no province in China was Covid-free.


However, the Chinese population grew tired and frustrated with the restrictions and the difficulties in accurately tracing and recording positive cases due to the speed of transmission. Another important factor was that the Omicron strain in general poses a smaller risk to life than earlier strains. Finally, recent protests pushed the government to lift restrictions.


Although people are enjoying their return to freedom, many have become accustomed to living in a largely Covid-free society and are anxious about the prospect of a surge in cases. Consumers may prefer to stay away from in-person catering and retail, avoid gathering in public places, and travel, leading to a slower economic recovery.


If cases were to suddenly spike, China could face a similar situation as the United States in 2022, when millions called in sick and companies had not enough people to work, causing a significant labor shortage and slowing economic recovery even more.


One of the most significant steps towards the total lifting of restrictions was the announcement, last December, that allowed people with no or mild Covid symptoms to recover at home, or voluntarily go to a centralized quarantine facility.


A person with mild or no symptoms can leave their home after a week if they get two consecutive negative tests on days 6 and 7 of home quarantine. Close contacts will also be able to self-isolate at home instead of going to centralized quarantine.


Previously, everyone who tested positive, whether they had symptoms or not, was required to go to a centralized quarantine facility, often a makeshift hospital, and only be permitted to return home after testing negative.


The risk assessment system for areas that have recorded positive Covid cases has been greatly loosened. Previously, an area that recorded cases in the last seven days would be designated as “high-risk” and be subject to lockdowns, while areas that recorded cases in the last 14 days were designated as “medium risk”, and were subject to some restrictions, such as limited freedom to leave and enter the area.


Since November, high-risk areas have been confined to the specific building or floor in which people who test positive live. Previously, entire communities and housing compounds were isolated if just one case was reported.


Additionally, cities and districts will no longer conduct mass compulsory testing. Those who may need to take a Covid test will be permitted to take a rapid antigen test (RAT) and will not be required to take a PCR test (commonly referred to as a nucleic acid test in China).


People are no longer required to show a negative PCR test and their health code when entering public premises and establishments, except for high-risk and vulnerable premises, such as nursing homes, welfare homes, healthcare institutions, childcare institutions, and primary and secondary schools.


In December, the travel code, used to track whether people had traveled to areas with Covid cases in the last 14 days, officially went offline.


In November, China abolished the “circuit-breaker” mechanism for international flights arriving in China. Under this mechanism, airlines’ flight routes from overseas departure cities to destinations in China would be suspended if passengers that had traveled on the airline’s route tested positive after arriving.


The cancelation of the circuit-breaker mechanism is a major step toward increasing the number of flights to China and will reduce international flight cancelations and delays.


Meanwhile, the Chinese government has taken steps to encourage its population to get vaccinated and to take booster shots, in particular people 80 and older. ICU capacity at hospitals has been increased to ensure that there are enough ICU beds, doctors, and nurses. It has also set up designated fever clinics to handle the surge of cases.


Although the lifting of restrictions may allow people to enjoy pastimes previously off-limits – restaurants, entertainment, travel – we may not see a significant uptick in consumer spending until the case numbers settle.


As more people get sick from Covid over the coming months, companies may experience labor shortages. This is likely to be more prevalent among workers that have a high risk of exposure, such as retail and catering, hospital staff, delivery drivers, and others.


The risk of Covid severely impacting workforces may be higher in China than other western countries. This is because many laborers in industries such as manufacturing and construction are often housed in dorms and share a room with multiple colleagues, greatly increasing the risk of infection.


A labor shortage could lead to further supply chain disruption as upstream and downstream suppliers struggle with Covid outbreaks. Labor shortages among dock and logistics workers in the US led to severe shipping delays. A similar situation could be seen among workers in China, which is home to some of the world’s largest ports.


Businesses should prepare for a surge in cases and adjust HR policies and working arrangements for employees to ensure that sick leave and other relevant practices are updated to accommodate an increase in sick personnel.


It is important to provide regular updates and information on the latest Covid policies, guidance, and resources. Ensuring that employees understand how the virus spreads, signs of infection, and possible risks can help maintain a healthy work environment.


To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at kristina@woodburnglobal.com.


DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.


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