As China strikes away from Zero Covid, ‘short-term financial turmoil might be important’

Wall Street Journal authors Jason Douglas and Sha Hua reported in Friday’s issue that “China’s economy took a hit in November, economists are hoping last big push on growth through a zero tolerance strategy towards Covid-19, which Beijing has since abandoned.

The Wall Street Journal (page A9 – December 16, 2022).

“Even though China faces turbulent months As the virus grips its population, economists say the easing of Covid controls is hurting the country’s economic outlook next year got an upgradewith the earlier-than-expected reopening that will boost consumer spending and drive economic growth.”

The Journal article noted that

“What’s happening in China in terms of opening up is hugely important for the global economy,” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at investment bank Natixis in Hong Kong.

Douglas and Hua added, “The downbeat data illustrates this growing pressure that faced China’s leaders as they made the decision to quickly dismantle a draconian approach to suppressing the coronavirus that had been in place for nearly 20 years 3 years. Frustration with politics boiled over in rare public protests in cities like Shanghai and Beijing.

“Key components of China’s zero-Covid strategy — frequent mass testing, entire city-block lockdowns, and centralized quarantines for infected people and their close contacts — were all scrapped in December. a turnaround that surprised both Chinese citizens and foreign investors with its speed and breadthafter years of Beijing calling for vigilance against the virus.

“Many economists expect the near-term turmoil in China’s economy to be significant as the virus spreads through China’s vast population, sickening sections of the workforce and discouraging nervous consumers from spending. Sporadic restrictions may still be needed to protect the Chinese healthcare system from being overwhelmed.”

The Journal article explained: “How quickly and enthusiastically Chinese consumers return to spending will shape China’s recovery, say economists. The usual drivers of Chinese growth — investment and exports — are being hampered by an ongoing housing slump and slowing Western demand for Chinese goods. put the burden on households to do the hard economic work.”

“Nevertheless, some economists are raising their growth forecasts for 2023 thanks to the faster-than-expected lifting of Covid control measures,” the journal’s authors said.

Also reporting in Friday’s Wall Street Journal, Keith Zhai said: “The Chinese government is returning to growth modeas a rapid deterioration in economic conditions is prompting alarmed officials to focus more on development after years of criticizing cadres who prioritized growth at the expense of social stability and fiscal discipline.

“He Lifengwho was admitted to the Communist Party’s top political decision-making body, the Politburo, at a party conclave in October, plans a growth plan of more than 5% for the next yearsay people familiar with the matter.

“At an internal meeting shortly after the Communist Party Congress, Mr. He, as head of the National Development and Reform Commission, China’s top economic planning body, said, called for action to ease Covid controls, boost the property sector and restore business confidencesaid the people.”

And Christian Shepherd and Vic Chiang reported on Saturday’s front page of the Washington Post: “Just over a week after China began dismantling its ‘zero Covid’ policy, signaling an end to nearly three years of mass lockdowns, Families in big cities shun their newfound freedom and huddle down instead with stocks of medicines and home remedies for fear of a devastating outbreak of infections.

The Washington Post (front page – December 17, 2022).

“The recent change in government policy has been staggering. Despite mass protests over the past month against arbitrary and excessive zero-Covid restrictions in at least a dozen cities, few expected the government would do so move so fast in the opposite direction. After more than two years of strict and pervasive Covid control, many Chinese report feeling left alone.”

The Post article noted that “public unease has worsened because the full extent of the outbreak is unclear. After suddenly lifting requirements for regular PCR tests, authorities said they were no longer able to track positive tests and scrapped daily reports of asymptomatic tests. A new classification and reporting system for Covid deaths has reportedly made it harder to record cases.”

“To combat public uneasiness, Official propaganda has reversed course. After months of underscoring the seriousness of coronavirus infections to justify increasingly unpopular lockdowns, Chinese health experts are now trying to allay the public’s fear of getting sick,” the Post article said.

Dow Jones writer Kirk Maltais reported on Friday: “The wave of Covid-19 outbreaks in China after the government withdrew from its Covid-zero enforcement expects commodities overall to remain under pressure through Q1 2023, Capital Economics said in a note. ‘The slowdown is accompanied by risk aversion among investors, which will continue to intensify undermine commodity prices‘ the company said. ‘However, global activity growth is beginning to recover around the second quarterWe expect improved commodity demand growth and investors’ risk appetite to drive up prices.”