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As China’s Covid Strategy Shifts, So Does Consumer Sentiment

China is imposing restrictions as Covid cases rise. Here: a Beijing shopping mall courtyard where stores are closed and restaurants are serving only takeout.

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Kevin Frayer/Getty Images

Amid China’s surging Covid cases and head-spinning changes in containment measures, observers are looking for some insight into the direction of market and consumer sentiment.

Even in normal times, Chinese stock markets are notoriously unpredictable—irrational, some analysts say. This is largely because they are young, comprised largely of poorly informed retail investors, and untethered to the real economy, providing an estimated 5% of total Chinese corporate financing.

In Hong Kong, the city’s benchmark index had been the world’s worst major performer—until its abrupt 25% bull run in November.

Even by Chinese standards, these are no normal times. Covid cases are on pace to break their daily record this week. Violent protests broke out Wednesday at the largest iPhone-producing factory in the world, in the city of Zhengzhou, run by
(APPL) supplier

China on Monday announced its first Covid deaths in sixth months. Beijing shut hundreds of businesses and moved classes online. Shanghai has closed entertainment venues in half of its districts. The largest district in the city of Guangzhou—“the world’s manufacturing hub”—is under lockdown.

Currently, 49 cities—accounting for 20% of China’s economic output—are under some form of lockdown, consultancy
said this week.

Most perplexing, policy makers released many easing measures weeks ago when cases were already on a worrying rise. Officials continue to send mixed signals and change strategies daily, yet promise that economic activity will be disrupted as little as possible.

These policy loosening initially “bolstered investors’ hope that we were seeing the beginning of the end of zero-Covid, but these hopes have been largely dashed. Policy movement of any kind from Beijing has been fodder for so-far unfounded hopes about reopening,” Joe Mazur, senior analyst at consultancy Trivium China, told Barron’s.

In conversations with residents in five Chinese cities with outbreaks, each described notably different Covid policies, ranging from blanket city lockdowns to restrictions varying by apartment complexes. What they all had in common, however, was a chilling effect on consumption.

“If I bike across town, I risk passing through a high-risk area and having my phone’s green code turn red,” said Lewis Xie, a graduate student in the city of Chengdu. A red code could mean being barred from entering any public space at best, to centralized quarantine at worst.

His consumer spending recently has been confined to ordering food delivery. Last week China announced that retail sales shrank in October compared with the same period last year.

“Efforts to contain the current outbreak will, at the very least, require additional localized lockdowns in many cities, which will further depress economic activity,” Mark Williams, chief Asia economist at Capital Economics, wrote in a note Tuesday.

Other analysts were more optimistic. “Authorities are sending signals of a more pragmatic attitude toward an economic road map, Covid policy, and geopolitical relationships, all of which will help deliver a gradual economic recovery. This is good for sentiment amid market negativity,” Bruce Pang, chief economist for Greater China at Jones Lang LaSalle.

Chinese leaders have continued to state that health concerns will trump all else. “The next weeks could be the worst in China since the early weeks of the pandemic, both for the economy and the healthcare system,” said Williams.

Ben Cowling, chair professor of epidemiology at the University of Hong Kong, added, “It’s difficult to imagine the healthcare system being able to cope with a large number of infections in a short period of time.”

He noted a characteristic about Chinese-made Covid shots that leave its health system vulnerable even with high vaccination rates. 

“While inactivated vaccines are very effective in reducing the risk of severe Covid, the sheer number of cases will still result in a substantial number of cases that require medical attention or even intensive care, and during a large surge the workforce will also be depleted by infections in staff,” he told Barron’s.


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