China may ease Covid Zero by 2022-end to aid economy, says Mobius

China will probably ease its disruptive Covid Zero policy by the end of this year as its economy is in trouble and the government needs money "badly," said Mark Mobius

China will probably ease its disruptive Covid Zero policy by the end of this year as its economy is in trouble and the government needs money “badly,” according to veteran emerging-markets investor Mark Mobius.

“I don’t think Covid is an issue going forward,” Mobius said in response to queries from Bloomberg News. “China has no choice but to open up to ensure the economy can function. Lip service will be given to it but the reality on the ground will be different.”

The co-founder of Mobius Capital Partners is somewhat of an outlier in predicting President Xi Jinping is likely to abandon the zero-tolerance approach in 2022 right after defending the policy -- characterized by snap lockdowns, frequent mass testing, and border curbs -- for saving lives at his address to this month’s Communist Party congress. 

Earlier this week, Anthony Wong, lead manager for the $1.2 billion All China Equity Fund at Allianz Global Investors, said China will reopen eventually, and “hopefully within the next six months.” Wong called it a contrarian call. 

The recently concluded congress provided few clues as to when authorities will end the policy that’s hammering Chinese growth and disrupting global supply chains. The world’s second-largest economy has come under immense pressure from moves that can see a megacity of 20 million people locked down with little notice. Economists are now forecasting growth of just 3.3% for all of 2022 -- far lower than an official target of about 5.5% set earlier this year.

Mobius said he’s become “more negative” on China in view of the policy shift taking place with the elevation of Xi to “the pinnacle” of the country’s leadership and control.

“I am afraid that the private sector will be suppressed in favor of state-controlled organizations, thus impacting innovation and creativity in the economy,” he said.

Xi’s focus on Taiwan will heighten tensions with the U.S., and in Asia generally, particularly Japan, Mobius said.