(Bloomberg) -- Chinese cities are moving toward regular mandatory free testing for Covid-19, an approach that would cost the government 1.8% of gross domestic product if it’s rolled out to more places, according to an estimate from Nomura Holdings Inc.

Testing 70% of the population every two days would amount to 8.4% of China’s fiscal expenditure, Nomura economists led by chief China economist Lu Ting wrote in a note. That’s based on the cost of a single-person polymerase chain reaction, or PCR, test of 20 yuan.

The spending could “crowd out” other government expenditure in areas such as infrastructure, the economists wrote, adding that “there are also opportunity costs, as people have to spend time every two days to take the test.”

The benefits of regular mass tests would be limited by the greater-infectiousness of the omicron variant of coronavirus, according to Nomura. As a result cities will continue to face frequent lockdowns and intercity travel will remain limited, it said. 

Other economists estimate the cost of mass testing will be smaller and the benefits could be more stimulatory for the economy. If China’s wealthiest cities, home to 30% of its population, introduced regular mass testing, the costs could amount to 0.2% of GDP over the second half of this year, economists at Goldman Sachs Group Inc. led by Hui Shan said in a report.

“Paying for mass testing in large cities may be effectively a major stimulus as it could allow production and consumption to proceed,” the Goldman economists wrote. At least 11 large Chinese cities including Beijing have introduced regular testing, they said.

Regular government-funded PCR testing with a negative test result required to enter public places could prevent lengthy lockdowns, reducing the drag on GDP growth from Covid Zero policies this year to 1.6 percentage points, the Goldman economists said. 

“This could be an important shift in China’s Covid strategy to both adhere to the dynamic zero-Covid policy and reduce the associated economic costs,” they added. 

Much will depend on how local government testing is funded and how many cities and provinces start doing it. In 2020, China’s central government issued anti-virus bonds, with the proceeds handed to local governments to spend. That helped them to increase health care spending without reducing support for other priorities.

While there’s been no official statement as to the cost of repeated mass testing, the cost to the public purse of regular tests for hundreds of millions of people will be large. Last month the national government said that testing 10 people should cost no more than 8 yuan ($1.20) per person, while earlier this year, Hong Kong budgeted HK$20 billion ($2.5 billion) for three rounds of tests on the city’s 7.5 million people. 

The cost to test half of China’s population every two days for a year would be about 900 billion yuan ($135 billion), according to Bloomberg calculations based on a cost of 8 yuan per test. That would be about 0.8% of 2021’s nominal GDP.  

Most economists doubt China’s government can meet its target of “about 5.5%” GDP growth for the year if it continues to enforce widespread lockdowns to contain virus outbreaks. Official data indicated that economic activity contracted in April as cities like Shanghai locked down and virus checks made intercity deliveries more difficult.

However, despite evidence of economic damage from the virus policy, the standing committee of the Communist Party’s Politburo, the top political body, said on Thursday the Covid Zero approach was “scientific and effective.” It signaled a tougher line by dropping a reference to reducing the economic costs of virus control policies, which it had made in previous statements. 

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