The Chinese economy has been in the doldrums over the past two months as spreading COVID-19 infections in major urban centres pushed Communist Party authorities to institute strict lockdowns. However, according to some experts, the world’s second-largest economy could be set to come roaring back into action as restrictions are progressively lifted.
Economy on Lockdown
China, where the novel coronavirus first originated, has mostly avoided some of the worst ravages of the pandemic, not even ranking among the top one hundred countries with regard to reported infections over the past two years. However, a renewed outbreak in some of the country’s most populous metropolitan areas quickly led to strict containment measures earlier this spring.
In early March, a resurgence of COVID-19 cases in southern manufacturing centre Shenzhen brought a wave of renewed restrictions in the industrial hub, putting pressure on regular economic activity in the city. Before long, eastern business capital Shanghai faced similar issues, forcing Tesla (TSLA) among many other multinational corporations to temporarily cease operations.
The Chinese government’s ‘zero-COVID’ policy, while perhaps preventing a full-fledged return to the early days of the global pandemic, had a markedly deleterious effect on the nation’s economy, according to many. With millions of citizens subject to stay-at-home orders as well as mandatory periodic testing, conducting business became progressively more difficult.
Chinese stocks in particular have not had a smooth ride in recent months, as regulatory pressures and contradictory indications from some of the country’s top authorities may have caused some to shy away from buying into the domestic tech sector. However, many experts posit that the brakes being slammed on economic activity could have been the direct cause of a significant investment outflow observed over the opening months of 2022.
From January until today, as of the time of writing, foreign-based investors sold more than $2 billion worth of Shanghai- and Shenzhen-based stocks. According to some, this could have been an expression of the lack of confidence among international actors in China’s prospects for economic recovery. This broad selloff was the first time more Chinese shares were sold than bought by those abroad over a comparable period in at least the past five years.
Chinese Phoenix Set to Rise Again?
With Asia’s economic juggernaut losing steam so far this year, Indices across the continent have been feeling the burn. So far this year, as of the time of writing, the Hang Seng Index (Hong Kong 50) has lost 8.5%, while the Tokyo-based Nikkei 225 is down by nearly 7%.
However, a change in China could be in the wind. This past weekend, Shanghai’s second-in-command, Wu Qing, confirmed to the public that businesses based in the city of twenty million will be able to get the wheels turning again this week as restrictions are made more lenient. Additionally, Shanghai’s municipal government has formulated a plan to stimulate the local economy starting tomorrow.
In addition to these encouraging signs coming out of one of the Chinese cities most affected by the pandemic, some health experts have been raising the possibility of a Chinese-developed mRNA vaccine rollout in the near future. Such a development could very well foreclose the possibility of another wave of lockdowns in China in the days and months to come. Furthermore, the People’s Bank of China, which heretofore has hewed to a relatively stringent monetary policy, has been signalling in recent weeks that it will move to lower interest rates in order to stimulate a domestic recovery in demand.
With this confluence of factors making the near-term outlook for the Chinese economy somewhat more sanguine, investors across Asia pushed the Hang Seng upwards by 1.38% as of the time of writing. While traders on the Nikkei (Japan 225) pushed this key Index up by 2% yesterday, rising tides in Japan may have receded, and today’s earlier gains were wiped out with a 0.3% loss. While optimism may have returned to Chinese shores, it could be too soon to draw firm conclusions as to whether Asia’s largest economy can fulfil traders’ expectations for its recovery.