“We need to work together to defend people’s lives and health,” Xi Jinping explained on Thursday, during a video address marking the opening of this year’s Boao Forum.
Xi offered little in the way of evidence to suggest China’s strict approach to COVID containment is up for debate. He called health “the prerequisite for human development and progress.”
It’s hard to argue with that. If you’re sick (or dead) it’s exceedingly difficult to develop or progress. But next to being disease stricken or otherwise infirm, being confined to one’s home and forbidden from engaging in any kind of activity, economic or otherwise, is the biggest impediment to “development and progress” there is.
Xi continued: “For humanity to clinch the final victory against the COVID-19 pandemic, more hard efforts are needed.” He described the world’s largest economy as resilient, with “enormous potential” and “vast room to maneuver.”
There’s little doubt about that, and to be fair, he did emphasize the “long-term.” The Chinese are good at the long-term. Americans may be too, but there’s no way to know because the US is a very young country. Judging by the average American’s attention span, which is increasingly confined to 140 characters, the outlook isn’t favorable.
The problem for Xi is that markets are concerned about the near-term in China. Contrary to what you might be inclined to believe if you (inexplicably) took the NBS data at face value, things aren’t going particularly well. Analysts openly questioned China’s first quarter growth data, which was inconsistent with alternative measures of domestic activity and, in fact, internally inconsistent on some interpretations.
Official data did show retail sales posting a YoY decline in March, and a poll of sales managers suggests things worsened materially in April. The Sales Managers Index dropped to 49.2 this month, the lowest in nearly two years (figure below).
The report, from London-based World Economics, flagged weakness in “all areas of economic activity” as business optimism “evaporated.”
Official data out Thursday showed Hong Kong’s jobless rate rose to a nine-month high in the three months ended March, with “almost all major economic sectors” logging an increases in joblessness. The city’s labor secretary cited the spread of COVID in the city. Nearly a half-million people requested COVID-linked unemployment assistance last month.
I’m reluctant to criticize Xi’s approach to COVID containment. I was a proponent of lockdowns in the Western world, favoring the preservation of life and health over economic imperatives, so it’d be hypocritical (not to mention wildly presumptuous) of me to suggest Xi is wrong. What I can say, though, is almost without exception, the rest of the world views the Party’s containment strategy as anachronistic.
Markets are impatient. The PBoC underwhelmed last week with a smaller-than-expected RRR cut, and there was no reduction in the loan prime rate this week. Mainland shares tumbled Thursday, dropping a fifth session near YTD lows (figure below).
Pessimism is rampant. Turnover on China’s main exchanges is the lowest in a year, as is margin financing, which receded for a 10th straight trading day on Wednesday.
Foreign investors are increasingly disinterested, or outright averse. Mainland shares are on pace for a second month of net outflows (figure below), as overseas money hits the exits through the links.
March marked the largest foreign exodus since global equities collapsed under the weight of the initial COVID wave.
On Thursday, Gao Feng, a spokesman for China’s Commerce Ministry, said Beijing is poised to implement new, “targeted” policies aimed at boosting consumption. The measures will be tied to pandemic containment protocols as they manifest at the local level.
“China’s retail market is recovering this year, and its potential is unchanged,” Gao insisted. “Consumption should continue to recover as COVID outbreaks are brought under control and support measures begin to take effect,” he added, noting that Beijing will “encourage purchases of big-ticket items,” like cars and appliances.
In a new note, Nomura’s Ting Lu cut the bank’s growth forecast. “Owing to rapidly worsening high-frequency activity data in April, the rising number of cities under full and partial lockdowns, severe logistics disruptions and signs that Beijing is unlikely to end its zero-COVID strategy soon, we have decided to cut our Q2 GDP growth forecast to 1.8% YoY from 3.4% currently, which if it materializes would be a marked slowdown from 4.8% in Q1,” he wrote, on the way to slashing the bank’s full-year GDP growth forecast to just 3.9%.
Nomura said it does “expect a shift to a de facto living-with COVID strategy” — after March 2023.
Puzzling why Chinese govt hasn’t been more effective at vaccinating its population.
Hubris possibly. Having beaten back the original wave, and several subsequent incursions, they perhaps felt they weren’t in danger of a variant penetrating their defenses the way the current variant has. And perhaps as well, assurances were being sent up the party chain of command confirming what the leaders wanted to hear, that they weren’t in any danger.
I think the problem lies within the ineffectiveness of the Sinovac vaccine. It is supposedly only 60% effective against earlier Covid variants and likely far less against Omicron.
The parties pride/hubris is probably preventing them from ordering some western RNA vaccines.
Is Xi following the advice of Ron DeSantis?
A more likely explanation is that face and national pride kept them hoping that the Sinovax shots would be more effective than they proved to be in practice.
From the March 23 NYT:
“Two doses of China’s Sinovac vaccine offered older people only a moderately high level of protection against severe disease and death from Covid-19, but a third dose significantly bolstered their defenses, according to a new study by scientists in Hong Kong.
The study, based on patients infected during the current devastating Omicron wave in Hong Kong, serves as a cautionary note for mainland China, where Sinovac is a pillar of the country’s vaccination program. Many older people there have yet to receive booster shots.
For people 60 and older, two Sinovac doses were 72 percent effective against severe or fatal Covid-19 and 77 percent effective against Covid-related death, the study found. Those levels of protection were lower than those provided by two Pfizer-BioNTech doses. The same study found they were 90 percent effective against severe or fatal Covid and 92 percent effective against death among Hong Kong residents of the same age group.
A Sinovac booster shot helped considerably, proving to be 98 percent effective against severe or fatal Covid among people at least 60 years old, the study found.”
My take is given Sinovac’s efficacy against severe disease and death (remember, the FDA would normally approve a vaccine with the efficacy levels two doses of Sinovac offered in this study, much less three) it does appear an unanswered question remains as to why the elderly population in China remains under-vaccinated. Especially given Xi ‘s statement at the top of this article:
“We need to work together to defend people’s lives and health.”
As far as vaccinating their elderly population goes, they haven’t lived up to this quote. For even though Sinvoac doesn’t appear to do much to prevent Omicron infection, it does offer significant protection against severe disease and death, which certainly counts as defending “people’s lives and health.”