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China's Covid Zero exit has happened at breakneck speed. Within two weeks, policymakers have flipped... From locking down everything at the first sign of a positive case, to the polar opposite extreme 👇
“Asymptomatic and mildly ill employees of the (Communist Party) and government organizations at all levels, enterprises and institutions can go to work normally after taking protective measures as necessary for their health status and job requirements,” - Chongqing Municipal Government
China's re-opening the economy, bullish China right?
Maybe, but timing is, as always, everything. Even though the CCP has loosened their iron grip, people still need time to adapt. It's not as simple as flicking a switch, and everyone suddenly forgets to be afraid of the virus.
The renewed surge of infections is likely to cause more issues with production, overwhelm the healthcare system, and generally cause more disruption until people adapt to the new normal.
It's the bumpy re-opening we highlighted here a month back 👇
The economy has already suffered. Retail sales were exceptionally weak in November at -5.9% year on year.
Steel production was also slower 👇
But that's all "where we are now". How about "where we're headed?"
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A big old stimulus package!
Ahead of the Central Economic Work Conference last week, policymakers emphasised the priority, is once again, expanding domestic demand.
“We must unswervingly implement the strategy of expanding domestic demand to effectively deal with external risks and challenges with the stable development of ourselves, as we face a complex and grave foreign environment,”
All sorts of economic factors will be kept within the always popular 'reasonable ranges', while the central bank promises to keep liquidity 'ample'.
Have a read of the full rundown via Pekingology here 👇
As usual, these plans need to be taken with a truckload of salt. It's one thing to say you're going to do something and quite another to actually do it.
Except GDP growth of course. One way or another, it'll likely be 5% or more next year. Whether that growth comes mainly from infrastructure investments or an increase in consumer spending is still up for debate. History suggests the former.
As the rest of the world economy slows, China's economic revival in 2023 could be a problem.
Xinhua say 'by ensuring a smooth transition of the COVID-19 response phases, China is projected to steadily resume economic growth and infuse new vigor into the global economic recovery.'
Bridgewater co-CIO Jensen has the opposite view, and told Bloomberg TV that any vigor from China could fuel another bout of inflation, putting said recovery at risk...
“It’s been such a disinflationary force into a global inflation. China opening and the effect that’s going to have on commodity prices, in competing for raw materials in the world, while the US and Europe are entering recession, will probably make the central banking dilemma worse.”
Which sounds pretty negative... However, Jensen hedged that view, highlighting how the China recovery could be made more difficult by the lack of stimulus so far...
“It’s worth noting that China did not do the type of balance sheet actions that US, European policy makers did in the sense that Chinese small and medium businesses are coming out of this with much worse balance sheets than they had,”
“You come out with much bigger overhang in China.”
Neither of those options looks particularly appealing. If China's reopening goes well, it could be bad for global growth because of renewed inflation.
If China's reopening doesn't go well, business balance sheets are poor and the rest of the world economy is slowing, China's economy's in far bigger trouble.
Whatever happens, it'll be a key theme for 2023!