China’s Covid outbreak worsened on Thursday as cities across the nation began imposing mass testing, localized lockdowns, and other restrictive measures which are frustrating the population and triggering fears the nation’s economy will fail yet again to reopen.
As the infections continue to resurge three years after the beginning of the pandemic, investor hopes for a return to normal trade are waning, the government seems more intent than ever on holding to their strict zero-Covid measures, and citizens are growing increasingly frustrated.
A 40-year-old man surnamed Wang in Beijing, who is a manager at a foreign company said, “How many people have the savings to support them if things continually stay halted? And even if you have money to stay at home everyday, that’s not true living.”
In Chaoyang, Beijing’s most populous district, Sanlitun, a high-class shopping area was almost completely empty, save for the buzz of E-bikes being driven by deliverymen carrying meals to citizens working from home.
The Nomura brokerage cut the GDP forecast for China for the fourth quarter to 2.4% year over year, down from 2.8%. It also cut its full-year growth forecast from 2.9% to 2.8%, which fell far short of the government’s stated 5.5% target. They also cut the GDP growth forecast for next year from 4.3% to 4.0%.
Nomura wrote, “We believe re-opening is still likely to be a prolonged process with high costs.”
While continuing to hew to the country’s harsh zero-Covid measures, the cabinet said the government would use timely cuts in bank cash reserves and other assorted monetary policy tools to produce sufficient liquidity. Investors assumed a cut in the reserve requirement ratio (RRR) will soon follow.
On Thursday stocks in China fell in response to the rise in Covid cases.
On Wednesday the country registered 31.444 new local Covid-19 infections, breaking a record last seen on April 13th, when an outbreak in Shanghai forced a crippling city-wide lockdown which lasted two months.
In this instance however the large outbreaks are spread out over the country, and only growing. The biggest is in the southern city of Guangzhou and southwestern Chongqing, however hundreds of new infections are popping up daily in smaller cities, including Chengdu, Jinan, Lanzhou and Xian.
According to Nomura, over a fifth of China’s GDP is now under lockdown, which is more than the entire British economy. Analysts for Nomura wrote, “Shanghai-style full lockdowns could be avoided, but they might be replaced by more frequent partial lockdowns in a rising number of cities due to surging COVID case numbers.”
In Zhengzhou, the enormous Foxconn factory that makes iPhones for Apple (AAPL.O) has seen massive protests by locked down workers, culminating in violent clashes between workers and security, as well as with Police called out to the factory.
If China enters a sharp lockdown, it will not only crush domestic demand, but will also produce economic effects which will reverberate across Japan, South Korea and Australia, all of which export billions of dollars of products and commodities to the world’s second largest economies.
It will also apply downward pressure on oil prices, as a falling Chinese demand will loosen the markets globally.
