While much of the world is rapidly returning to pre-COVID norms with the relaxation of mask mandates and vaccine requirements, China and Hong Kong are in the grips of another surge in cases. China had been considered a model for its vigilance against the disease with strict lockdowns and shutdown of virtually all economic activity.

This approach certainly has its merits in terms of curbing the disease's spread, but it's proving to have some drawbacks, especially when coupled with the lower efficacy of the Chinese coronavirus vaccine which was shown to be less effective than ones from U.S. companies. The sum result of this approach is that the country is much less close to 'herd immunity' than places with less strict restrictions and better vaccines.

With the latest outbreak, China is looking to balance the tradeoff between controlling the virus and damage to the economy. As a result, officials are now promoting policies such as at-home test kits or sending people to centralized isolated facilities instead of hospitals.

In a speech to government officials, President Xi recommended: "maximum effect" with "minimum cost" in controlling the virus. At the same time, there are questions about how lenient local officials will be given that some have been dismissed following increases in case counts.

There are also implications for the global economy as ports and industrial areas have been shut down in addition to schools and offices. This will have the effect of throwing sand in the gears of global supply chains and bottlenecks that have built up across various channels also exacerbating inflationary pressures.

In the early days of the pandemic, China's aggressive efforts had widespread public support. Now, the situation is much different with public opinion favoring a more relaxed approach especially given the economic impact for low-income groups. The country has also put more emphasis on controlling the virus' spread rather than vaccinating the population, especially among older and more vulnerable populations, especially in rural areas.

This less stringent approach to the coronavirus was also met with applause by public markets which staged an impressive rally following these comments by President Xi with the Shanghai Stock Exchange rising 7% from Thursday's low.