Scientific Efficiency

It’s a good thing they have a 20-point plan!

Retail sales in China unexpectedly contracted in October, made-up data released on Tuesday showed. (At least it was released on time this month.)

The 0.5% YoY drop (figure below) was set against expectations for a small increase, underscoring the impact of virus curbs, which lingered in the days and weeks surrounding the Party congress, at which Xi “secured” (or bestowed upon himself, whichever you prefer) a pathbreaking third term.

Supposedly, the Party is set to ease “COVID zero” going forward based on 20 “parameters” unveiled last week to the market’s childlike glee. Subsequently, reports indicated Beijing also has a 16-point plan to revive the property sector. Credulous investors were more than happy to bid up beleaguered Chinese tech and real estate shares on reopening hopes.

In that context, Tuesday’s activity data was considered stale. From here, it’ll get easier, said the people on television, reporting live from Hong Kong, where John Lee swears “fundamental rights and freedoms, including freedom of speech, the press and assembly” are still sacrosanct. Testing that proposition is easy: Go to Hong Kong, assemble and try to speak freely about democratic reforms on the Mainland. Let me know how it turns out.

Like the retail sales figures, industrial output underwhelmed expectations for October, rising just 5%, down markedly from the prior month’s 6.3% pace and slightly below consensus.

Cumulative fixed-asset investment was basically in line. It usually is. The surveyed jobless rate held at 5.5%.

Again, the numbers will be written off as backward-looking, and not just because they’re for October. Now, it’s all about the Party’s roadmap for a softer approach to virus containment and a revival of the real estate sector. Or at least that’s the narrative, and it helped Hong Kong-listed Chinese shares rise more than 20% from the lows.

COVID cases are running at the highest levels since the Shanghai lockdowns, though, which means the new approach will undergo a trial by fire, testing not so much Xi’s mettle, but his patience for the pathogen, which he at times seems to view as somehow sentient, and purpose-driven — as though COVID is trying to embarrass him, and must be taught a lesson.

The activity figures should also be considered through the usual lens: They’re probably not accurate. So, if the NBS says retail sales contracted marginally last month, they probably shrank considerably. Trade data is harder to fake because trade involves two parties, and you’re reminded that export growth turned negative in October. Imports likewise contracted (figure below).

Exports were the lone pillar of support for the Chinese economy. That pillar began to crack months ago amid receding global demand for cheap goods. Now it’s crumbling.

I had a modest suggestion on that front last week: If Xi wants to bolster shipments abroad at a time when demand from trading partners is likely to slow further, a good place to start would be lifting restrictions that are preventing the world’s most popular consumer products from making it out of the country. Apple this month had to cut its outlook for high-end iPhones due to virus protocol in Zhengzhou.

Credit demand was very weak last month. New yuan loans were the lowest in nearly half a decade. That too is a consequence of lockdowns, and the impact they have on households and consumer psychology.

Ultimately, the outlook is bleak. The PBoC has room to ease further and may do so in the months ahead. On Tuesday, the MLF rate was held steady. Officials were adamant that between MLF injections, pledged supplemental lending and shorter-term funding, the “demands of financial institutions were fully met.”

For its part, the NBS said the Party will manage the trade off between growth and virus containment “scientifically and efficiently.”