No swerving yet

Covid rumours moved markets

Like the disease itself, speculation that China’s zero-Covid policy could be coming to an end has been feverish.

There was disappointment when the National Party Congress concluded last month with no sign of an end to lockdowns, mass testing and travel curbs any time soon. And if anything the economy has been heading in the opposite direction. Japanese bank Nomura estimates that just over a tenth of China’s gross domestic product was under some form of lockdown as of Thursday last week, up from 9.5% last Monday.

By Monday this week the disruption was casting a shadow across 12.2% of the economy, according to Nomura’s model. That included a seven-day lockdown at the world’s biggest iPhone factory in Zhengzhou in Henan.

Yet the month had begun with hope that zero-Covid might be on its way out, after a completely unverified screenshot did the rounds on social media purporting to show that the government was preparing for reopening next March.

The result was a $450 billion rally in stock markets, with the Shanghai composite surging 5% and the Hang Seng Index (HSI) in Hong Kong doing even better with gains of well over 8% over the week.

Some of the feel-good factor started to evaporate at the weekend, when officials from the National Health Commission said there were no plans to back away from the current approach.

“Previous practices have proved that our prevention and control plans and a series of strategic measures are completely correct,” an official at the commission announced, vowing to stick to the policy “unswervingly”.

Decisionmakers might not be quite as confident in private that zero-Covid is the only option. Pressure is building, following another round of damaging data on the economy, with imports and exports both reversing unexpectedly in October for the first time in two years.

And amid the febrile, rumour-laden mood, there was a renewed rally of 2.7% in the HSI on Monday after a Goldman Sachs report forecast a 20% surge in Chinese stocks, noting that an end to Covid restrictions could be “one of the most visible, long-awaited, and powerful upside catalysts for the market”.

The moves reflect the market sensitivity to any talk about a policy change in Beijing. Bears say that the government has set itself so determinedly on a zero-Covid path that it makes it more difficult to change direction. In the meantime the media is monitoring events for clues that change is coming. Some of the signals have been oblique, including a flurry of interest in the People’s Daily’s health app after it cited comments from Wu Zunyou, chief epidemiologist at the Chinese Centre for Disease Control and Prevention, that seemed to downplay some of the risks in contracting Covid.

But as Bloomberg later reported, the article in question was actually conveying the views of another expert that the definition of ‘long Covid’ is still in doubt.

‘Bullish’ hopes of a shake-up were sparked again after German Chancellor Olaf Scholz said that the health authorities had agreed to make the BioNTech vaccine available to foreign residents in China. Although that seems like a pretty limited concession, some interpreted it as a potential step towards beefing up vaccinations among the elderly – where inoculation rates are still lower than many other countries – ahead of ‘opening up’.

China’s Covid-19 fatality rate has been much lower than most countries in the West because of its measures to counter the pandemic. Officially it has recorded about 5,000 deaths as a result of the virus, compared to more than a million fatalities from Covid in the US, the Wall Street Journal reports. That has been celebrated as another sign of the superiority of China’s governance model, which may also make the authorities even more reluctant to change direction now.

And yet there was an even larger market move as WiC went to press. On Friday morning the HSI surged 5.4% after Xinhua reported that the Politburo Standing Committee had announced it would “strive” to reduce the impact of zero-Covid curbs on the economy. The spike in investor enthusiasm again underscored the skittish mood.

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