Lockdowns are spreading but they’re confused. Sinocism:
Beijing recorded three Covid-related deaths, the first official deaths from Covid in the PRC in six months. Cases are surging in several cities including Beijing, Shijiazhuang, which has now locked down, Guangzhou and Chongqing. Vice Premier and Covid czar Sun Chunlan made a research and inspection tour to Chongqing. Tougher measures including lockdowns and mass centralized quarantining usually follow her visits. Investors may have gotten ahead of themselves in their exuberance about the possibly reopening, or at least the virus has not yet seen the bullish research memos.
Covid-19 outbreaks are rapidly expanding in the capital, with 962 infections reported on Monday, including 266 detected during community screening, suggesting authorities are struggling to contain the outbreaks. The case numbers have more than doubled since a week ago, when 407 infections were reported.
Just a week after abolishing regular Covid testing and easing other virus restrictions, Shijiazhuang in North China’s Hebei province launched a new round of mass testing and told its 11 million residents to stay at home for five days as case numbers ticked up again.
She called for the acceleration of the construction of temporary “fangcang” hospitals and isolation facilities 加快方舱医院、隔离房间建设 and to “strengthen health monitoring and management for mobile personnel such as couriers and volunteers, as well as key places such as construction sites, supermarkets and nursing homes, so as to avoid becoming an “amplifier” of the epidemic 对快递、志愿者等流动人员以及工地、商超、养老院等重点场所，加强健康监测和管理，避免成为疫情“放大器””
Sun urged immediate, resolute and decisive measures to cut off the transmission chain and contain the virus spread more quickly so as to shield economic and social development and people’s well-being from the pandemic to the greatest possible extent.
The COVID-19 situation in Chongqing remains complex and grave as infections are still on the rise. Sun ordered a science-based and precise COVID-19 response, which she said is key to better prevention and control work.
Baiyun district, home to 3.7 million people in Guangzhou, also suspended in-person classes for schools and sealed off universities. The measures are meant to last until Friday, the city announced.
Guangdong Party Secretary Huang Kunming goes to Huangpu District in Guangzhou to inspect the construction of temporary “fangcang” hospitals and quarantine facilities
The city reported 951 cases for Sunday, the most since Bloomberg started tracking the data on Sept. 1, 2021. A 91-year-old woman and 88-year-old man died yesterday, following the death of an 87-year-old man Saturday. He was the nation’s first documented virus-related death since May 26, when Shanghai authorities reported one fatality.
People travelling into Beijing will be required to do daily tests in the first three days of their stay, and wait for the results before being allowed to leave their homes or accommodation, city government spokesperson Xu Hejian told the same briefing.
In a potential sign officials are reverting to tighter Covid Zero curbs as cases multiply, Shijiazhuang, a city of about 11 million people near Beijing, has suspended schools, locked down universities and asked residents to stay at home for five days, according to the statement carried by official Shijiazhuang Daily.
A mass Covid testing exercise will be undertaken in six major districts, and universities will be put into so-called closed loops, where students are unable to leave campuses. All in-person classes at primary and middle schools have been halted.
After the press conference, six other districts, including Dongcheng, Xicheng, Tongzhou, Yanqing, Changping and Shunyi, released on their official media accounts letters to their residents, calling on people to reduce cross-district personnel flow and avoid unnecessary trips. Haidian district released a similar letter to residents on Saturday.
Beijing on Saturday reported 79 locally transmitted COVID-19 cases and 436 local asymptomatic cases. Among them, 80 were found at the community level.
Zhuang Shilihe, a Guangzhou-based medical expert who closely follows public health issues, told the Global Times on Sunday that the inflection point of the latest flare-up in Guangzhou is far from arriving and warned the local cases are likely to continue to surge. An optimistic estimate is that the local outbreak can be effectively controlled in two months, the expert noted.
Multiple other cities in the mainland also saw the COVID-19 case resurgence and tightened epidemic measures.
For example, Tianjin decided to launch a citywide nucleic acid testing on Sunday after the city detected 76 local silent carriers on Friday.
Chengdu, capital city of Southwest China’s Sichuan Province, vowed to continue the regular nucleic acid testing and requested residents to show negative result of the nucleic acid test within 24 hours when entering closed public arenas including bars, karaoke rooms and mahjong parlors.
This looks like COVID worst case to me. Lockdowns but not lockdowns. So the virus will spread into winter triggering even more confused private sector lockdowns. Good luck.
Longer term it isn’t pretty, either. TSLombard:
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In recent weeks Beijing has addressed the three main concerns of markets: Covid, the property sector and US-China relations. Of the three, it is only Covid adjustments that matter. While a suite of property measures significantly lower the tail risk of a hard landing, they are insufficient to trigger an acceleration in investment or sales. Similarly, a photo op in Bali does not mean Biden will let up on tech restrictions or that new House Speaker McCarthy will refrain from visiting Taiwan. Covid remains key for the economy and for assets – and there is positive news on this front: China is firmly committed to moving away from “zero Covid”. The 20 Covid optimization measures announced by the Politburo earlier this month mark the beginning of the end, but the exit process will be long and bumpy. Tweaks to Covid policy are in line with our base case of gradual reopening from Q2/23. As we have noted many times, the constraints on Covid easing are politics and healthcare. The political constraint has changed significantly, but vaccination rates remain low and medical facilities and supplies are still lacking. For now, we stick with our growth forecasts (2022: TSL 1.6%; official 3.5%; 2023: TSL and official 5.3%) and adjust our asset allocation to reflect more balanced risks over the next three months. We still think China will have a very difficult winter and for this reason we are waiting for clearer signs of healthcare improvements (daily vaccination rates approaching two mn) before entering into reopening trades. However, our confidence in the growth outlook for the next six to twelve months is now much higher.
Confusion before confidence. The key Covid optimization measures announced by the Politburo include shortening the quarantine period, lifting quarantine for indirect close contacts, limiting the use of PCR testing, narrowing the coverage of risk areas, accelerating booster vaccination, improving the healthcare system, and stockpiling drugs to treat Covid-19. The National Health Commission (NHC) wants officials “to do a more precise and scientific job in pandemic prevention and control”; and for the past week, the People’s Daily, the most important state newspaper, has been running daily commentaries on the changed Covid-19 policy. The new stance is described as “optimizing zero Covid” but not “lying flat” in the face of new outbreaks.
The messaging has clearly changed, but the new reaction function and tool kit for officials is unclear. Although zero Covid was damaging to the economy, cadres at least had a clear target and method of dealing with the virus. The new poorly defined “0.5 Covid” – our designation for the policy stance – has triggered wide-ranging responses across China. Testing booths have been removed and subsequently put back up again. Health codes for public transport have been scrapped in some cities but kept in others. Guangzhou, which is currently experiencing a major outbreak, tried enforcing “quiet weekends”. Beijing is close to imposing a major, albeit slightly more targeted lockdown, while Shijiazhuang, a city of 11 million people, seemed to let the virus rip. Today, a number of major cities, including those mentioned above, are returning to the playbook of lockdowns and mass testing.
Winter is coming. We believe healthcare remains the largest constraint to more rapid easing. The latest statistics from the NHC put the number of 80+ year olds with three jabs at just 40%, while the share of those who have received two shots is 66% (chart 2). Based on the experience of Hong Kong, three injections of a China-made vaccine are necessary to provide adequate protection for the elderly. On the medical facilities front, China has made efforts to build new hospitals and create stockpiles of medical goods but is still severely underserved in this area. A CDC study suggests that two weeks of a US-style outbreak could overwhelm the system.
Boosting vaccination rate is key, and Beijing looks to be preparing for a more serious push. Adjustments to classification of vaccine risk factors such as high blood pressure suggest efforts are underway to address vaccine hesitancy, but these moves may prove ineffective and will certainly take time to implement. With a winter flu outbreak highly likely, it will struggle to move far beyond its current zero Covid policy for some months.
Under a ‘0.5 Covid’ policy regime, there is little change to the immediate growth outlook. The upshot of the haphazard policy shift that is occurring in conjunction with a major Omicron outbreak is little to no improvement in economic activity despite changed Covid-19 controls. Households are confused rather than confident. After almost three years of emphasizing the danger of Covid-19 and the importance of zero Covid, the abrupt change and unclear policy is causing widespread confusion. Our proxy for interprovincial travel remains subdued. Similarly, social media trend and search data point to little change in public perception, which is in line with daily data on cinema tickets and catering sales, while terrible “singles day” sales figures have been reported (or, in some cases, not reported) by leading retailers. Consumers are still pessimistic amid what is likely to remain anaemic services-sector wage growth and job creation. This, in turn, feeds through to private-sector credit demand and investment, particularly realestate FAI. As long as strict Covid restrictions are in place, monetary and property sector stimulus will continue to have little effect.
The goal of exiting zero Covid is now clear, but the timing of the reopening – and reopening trades – is tricky. Our base case is that a renewed vaccination push and ongoing changes to propaganda and political messaging will set up a gradual reopening from Q2/23. The key signpost to track is the number of daily vaccines administered (Chart 1). Other leading indicators are further changes to the 10th version of the Diagnostic and Treatment Protocol for Covid 19 and state media messaging, perhaps in conjunction with a WHO downgrade of the severity of Covid-19. A strong uptick in vaccines administered approaching the 2 million/day recorded in early 2022 would be a signal supporting entry into reopening trades (long consumer services and RMB, bear steepening of rates). Until then we maintain our more cautious positioning (neutral equities and RMB, negative government bonds) through what is going to be a difficult winter period.
Sounds about right to me but until then the economy is going to get worse with property unlikely to recover, either. TD Securities:
China’s property sector is undergoing a crisis of confidence. Homebuyers are reluctant to purchase amid fears that construction will not be completed. Covidlockdowns have exacerbated fears, which have hurt spending and put buyers off. Property construction has collapsed, while developer liquidity has worsened, and prices have fallen. Official measures to support the market include an easing ofproperty restrictions, lower mortgage rates, policy banks support to fund completion of stalled construction projects, measures to improve developer liquidity, etc.
However, while the above are supportive there is no big bang stimulus that will turn the sector around quickly. Developer liquidity will likely show some improvement inthe months ahead as sales begin to pick up, helping overall construction activity. Nonetheless, the funds utilised are simply not large enough to prompt a quick turnaround given concerns about fuelling leverage.
Homebuyer caution is likely to remain in the months ahead until and unless there are much larger funds allocated and Covid restrictions ease significantly, neither of which look likely anytime soon. Given the large weight of the property sector (up to 30% of GDP), we maintain our view of limited growth recovery, with GDP expected at 3.1% this year and 4.7% in 2023.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
