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SHANGHAI: China stocks fell on Tuesday, as optimism over easing COVID-19 restrictions started fading amid signs of a spike in infections in major Chinese cities including Beijing.

Hong Kong stocks however gained on news that the city would further relax its COVID curbs, boosting consumer and property shares.

The benchmark CSI300 Index fell 0.2%, while the Shanghai Composite Index dipped 0.1%. Hong Kong’s Hang Seng Index climbed 0.7%.

China and Hong Kong stocks had rebounded sharply from their end-October lows on hopes China would drop its strict zero-COVID policy.

Chinese authorities started to unwind strict zero-COVID policies last week, but optimism about a possible reopening of the economy is giving away to fears of massive outbreaks and disruptions following Beijing’s abrupt policy pivot.

“Over the past two weeks, the Chinese government did a sudden 180-degree turn on ending zero-COVID,” Nomura chief China economist Ting Lu wrote in a note to clients.

Since official COVID data is no longer reliable due to a drop in mandatory testing, Nomura used alternative data to track China’s COVID situation, and concluded that Beijing is probably the epicentre, with several other major cities including Wuhan and Chengdu also witnessing a spike in infections.

“We believe China may have to pay a price for its procrastination in reopening,” Lu said, adding that the outbreaks in big cities might be only the beginning of a massive wave of COVID infections across China.

Most sectors in China fell on Tuesday, with medical companies, which are market darlings recently, also correcting.

An index tracking Chinese traditional medicine makers dropped 0.6% from 11-month highs.

Hong Kong stocks rose as investors cheered news that the city was easing COVID-related movement restrictions further.

The financial hub on Tuesday said it would drop a requirement for incoming travellers to avoid bars and restaurants in the first three days after their arrival.

Hong Kong tech stocks rose 0.7%, while consumer shares gained 0.8%. Chinese chipmaker Semiconductor Manufacturing International Corp (SMIC) jumped nearly 10% in Hong Kong, while Hua Hong Semiconductor Ltd surged 17.4%. Reuters reported China was working on a more than 1 trillion yuan ($143 billion) support package for its chip-making industry.

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