Fears of a Shanghai-esque lockdown in Beijing undercut already fragile risk sentiment Monday, sending global shares sharply lower.
Beijing logged 29 local COVID cases in 24 hours through Monday afternoon, bringing the total since late last week to 70. Cases are spread across eight districts, with more than half in Chaoyang, the city’s business hub. Local officials in the tourism bureau banned group travel, according to Xinhua.
I’ll recycle some language I’ve used previously. This seems wholly anachronistic to the rest of the world. 70 cases in 72 hours wouldn’t be news in any other major city globally. In Beijing, it’s considered an emergency. Some parts of Chaoyang were put into modified lockdown, pending a round of triple testing.
A spokesman for the city government described the outbreak as “complex and stealthy.” Another official said the virus is “spreading invisibly” in the capital, as viruses are wont to do. “The risk of continued and hidden transmission is high, and the situation is grim,” said Tian Wei, a member of Beijing’s Municipal Party Committee. “The whole city of Beijing must act immediately.”
During a regular briefing Monday, Foreign Affairs Ministry spokesman Wang Wenbin parroted the Party line, figuratively and literally. China’s “COVID zero” strategy is based on science, Wang insisted, adding that Xi’s approach to containing the virus is “endorsed by the Chinese people.”
That may well be true, on balance, but it’s hard to know considering the Party is actively removing evidence to the contrary. A six-minute protest video documenting the trials and tribulations of locked-down residents in Shanghai was removed by censors, kicking off a “cat and mouse game” (as SCMP put it) between online regulators and curious netizens.
There are 3.5 million people in the Chaoyang district which, in addition to being the city’s business hub, also houses the majority of foreign missions. Locals are stockpiling food. Both physical and online retailers are sold out of staple items, and stores are reportedly accumulating enough basics to cover average sales volumes three times over in anticipation of hoarding, or “surging demand,” as Bloomberg euphemistically called it. The same linked article noted that Meituan, one of the poster children for Xi’s “common prosperity” crackdown, has “increased manpower by as much as 70%” in order to ensure same-day delivery.
Reuters spoke to a graduate student who’d just placed orders for “dozens of snacks and 10 pounds of apples.” “Shoppers in the city crowded stores and online platforms to stock up on leafy vegetables, fresh meat, instant noodles and rolls of toilet paper,” the linked piece said.
Mainland shares, already in turmoil amid growth worries and snowballing outflows, collapsed Monday. The CSI 300 fell 5% (figure below).
Do note: Monday was the worst session since the 8% decline logged during the first day of trading following 2020’s Lunar New Year holiday, which was extended in an effort to combat the spread of “original COVID,” if you will. At the time, the virus was still considered by many market participants to be a “China problem.”
The dramatic March rebound catalyzed by Xi’s pledge to wind down the regulatory crusade against platform companies and use monetary policy to support markets is now a memory. The PBoC has delivered very little and other measures have proven insufficient to bolster sentiment.
The Mainland benchmark sits at the lowest levels since April of 2020 (figure above). In the market’s mind, at least, “COVID zero” is testing negative.
Shares of Chinese restaurant chains were a disaster Monday. Haidilao, Xiabuxiabu and Jiumaojiu all notched double-digit declines.
The Beijing lockdown scare comes as analysts question China’s economic data, which suggested growth was relatively robust in the first quarter. Activity figures for March showed the expected decline in retail sales, but some suspect the true scope of the deceleration isn’t reflected in the official numbers.
A capital-wide lockdown could be a death knell for the Party’s full-year growth target.
What will Xi do to support economy against this massive own goal? One obvious tool is to turn up dial on infrastructure and housing development. While the domestic companies engaged in this work are not interesting to me, the commodity implications may be investable.
Schadenfreude?