The end of zero Covid

The end of zero Covid

News Articles

During the past couple of weeks, much of the news in China has been about the coronavirus, especially the decision to end the "zero Covid" policy that had been in place for three years. As a result, cases of Covid have spiked in Beijing and Guangzhou, and Shanghai is beginning to follow suit.

Experts predict that the peak of infections should come in early 2023, which is typical of other nations' experiences. However, economists are also reevaluating their predictions for 2023 to accommodate the repercussions of China's economy being freed of Covid restrictions.

Last week, depressing economic statistics continued rolling through the Chinese economy, headed by a dramatic decrease in industrial output and a 5.8% decrease in retail sales in November.

The poor data, worse than analysts predicted, further included a 9.8% decrease in car sales for the month, reversing a few months of growth. Since September, these figures have become progressively worse due to Covid-19 flare-ups causing fresh lockdowns and other unfavorable control measures after a relatively virus-free summer.

December will likely be just as dreary since the recent suspension of strict Covid-19 restrictions is not expected to have a major effect until after the Lunar New Year celebrations.

Shares of offshore-listed China companies took a breather last week, pausing from their strong double-digit gains that ended in October. The Hang Seng China Enterprises Index declined 2.9%, while the broader Hang Seng Index declined 2.3%. The iShares MSCI China ETF fell 2.9% on the New York Stock Exchange.

On that day, investors paid more attention to the Fed's 50 basis point interest rate increase than the accounting board's favorable audit assessments of the U.S.-listed Chinese companies.

The Guangzhou Auto Show, one of China's three annual auto shows, will now take place from December 30 to January 8, more than a month after it was initially scheduled for November 18 to November 27.

Guangzhou was one of the worst-afflicted cities in the recent Covid outbreaks and was grappling with everything short of a city-wide shutdown before the sudden cancellation of zero Covid. So, the fact that the event will be held so soon after its darkest hour truly does feel like a slightly symbolic gesture to show that China is learning to live with the virus.

After two years of inactivity, China's travel industry appears to be showing new life. VariFlight data indicate that domestic flights in China rose to 65 percent of pre-pandemic levels last week, a significant increase from 22 percent at the end of November.

Popular holiday booking website Ctrip has also confirmed that Lunar New Year reservations are up by 250 percent. Because many Chinese have not celebrated this traditional family holiday at home for two years, it's no surprise that many are planning to go on vacation. As a result, it is anticipated that the travel sector will be extremely active in the Year of the Rabbit.

Last week, three U.S. representatives introduced a bill that could ban TikTok, the world's most popular social media app, in the United States. One of the three was Marco Rubio, who has proposed several laws targeting Chinese companies over the past few years. However, it's unclear whether Rubio's proposals will become law or are merely grandstanding to look tough on China. Donald Trump also took on TikTok during his presidency, demonstrating there are some powerful voices against the company due to its China roots.

Abbott Laboratories is closing up its China operation, at least for its well-known baby formula products. The Chinese subsidiary of Abbott Laboratories announced the decision last week, citing shifting consumer demands and fierce competition.

We suspect the company also suffered from a poor image in China, which led to its decision. Last year, China's customs warned consumers of Abbott formula imported from the U.S. because of safety issues at one of the company's factories.

China's troubled real estate market is never far from the news, and in this case, Longfor, one of the country's many indebted development firms, is the center of attention. Last week, the Bank of China offered the company 700 million yuan in offshore loans.

The country has provided a lifeline to struggling developers by helping them out at home and is increasingly worried about the billions of dollars in overseas dollar-denominated bonds. As a result, it is encouraging large state-owned commercial banks to provide financial assistance at home and abroad to support the market.