The Chinese government — or, more aptly, “the Xi Jinping regime” — postponed the most important economic planning conference of the year amid a surge in COVID infections. Then, they un-postponed it.
On Tuesday, reports indicated the Party had “delayed” The Central Economic Work Conference given the rapid spread of the virus in Beijing, where the situation is touch and go a week on from the overnight rollback of key pandemic control measures.
Just a day later, the conference was back on. It’ll start Thursday, apparently, despite what I can only assume are very high odds that top officials will contract COVID or give the COVID they already have to other top officials.
If it weren’t a deadly virus and if the Chinese leadership weren’t so old (and thereby susceptible to severe disease), this would be an objectively comical situation: A cabal of communists who spent the last three years cordoning off entire cities to contain an airborne pathogen gathering together, inside, behind closed doors, in close proximity, to work on a centralized plan to revive an economy they nearly killed.
“It wasn’t immediately clear why officials changed tack,” Bloomberg noted, dryly, adding the customary reference to an unanswered fax. (Imagine sending a fax to the Politburo. There’s probably a long “beeeeeeep” from a lonely printer in a basement somewhere. The stack of unanswered messages exceeded the printer tray’s capacity in 1995, so every new fax slides out of the printer, over the top of the pile and onto the floor, where every unanswered Western media comment request has been gathering dust for three decades.)
According to the December vintage of BofA’s Global Fund Manager survey, optimism on China’s growth outlook “surged” this month, with a net 75% of panelists now expecting a stronger Chinese economy in 2023. That was up from just 13% last month (figure below).
Nearly three quarters of the fund managers who participated in the poll expected China to “fully reopen” by this time next year.
What could go wrong? Well, if the benchmark for “stronger economy” is this year, then not a lot. After all, 2022 is a (very) low bar when it comes to Chinese economic growth and even if 2023 somehow ended up being worse, officials would be extremely reluctant to admit it.
However, if we abstract a bit from the narrow question of whether next year will be better than this year according to official data, a lot of things could go wrong.
First, China has already “fully reopened” in many respects, and it’s not going especially well so far. It’s possible the spread of the virus will suppress economic activity in the near-term if people stay inside to avoid getting sick. You could easily argue that isn’t likely — after all, it was just two weeks ago when people were taking to the streets to demand the lockdowns be lifted — but first-hand accounts suggest the longest lines in some Chinese cities aren’t at restaurants, they’re at fever clinics.
Second (and relatedly) an overrun healthcare system and a spike in fatalities (reported or not) could compel the Party to roll back the rollback, if you will — to reinstitute lockdowns, which would be a major blow to sentiment.
Third, if the reopening eventually goes well (say, after the initial wave runs its course), the release of pent-up Chinese demand (for crude specifically, but also just in general) could be an unwelcome inflationary impulse in 2023 just as price pressures were abating in the West. Of course, you could argue that “COVID zero” was itself highly inflationary for the rest of the world given the implications of lockdowns for supply chains and logistics, even as it was deflationary for the domestic economy. From that angle, a Chinese re-opening is certainly welcome.
Admittedly, I’m predisposed to believing that if it can go wrong in China these days, it probably will — that bias is down to my disdain for Xi’s totalitarian turn. Given that, readers should take my assessment with a grain of salt.
At the same time, you should also cast a wary eye at optimistic assumptions about the Chinese economy and local assets harbored by Wall Street given that with the exception of bank economists (who generally got it “right” by ratcheting their growth forecasts for the world’s second-largest economy lower throughout 2022), almost every “buy-the-dip” call was a false dawn for two years running.
On Wednesday, the National Health Commission said the country would stop reporting comprehensive data on new COVID cases, which, according to the official tally, were just 2,249 on the Mainland Tuesday. In a country of 1.4 billion, with a “b.” Hong Kong, population 7.4 million, with an “m,” had 15,000 cases.
The National Bureau of Statistics said Wednesday that tomorrow’s crucial activity data for November will be released online. No in-person press conference will be held. The NBS cited “work arrangements.”
For the US, during the various Covid waves, it was possible to track the wave and position investments accordingly in anticipation. In China this will be difficult because accurate and timely Covid case, hospitalization, and death data won’t be reported. I expect that the Covid wave now starting will crest and subside sometime in 2023 such that the economy will indeed “reopen” during the year, but when? Perhaps look at US, UK, India, Brazil curves for a clue.
I am remembering India at its worst and multiplied .
India’s second wave (first really big wave) took about 100 days to peak (roughly mid Feb 2021 to mid Mar 2021) and another 100 days to abate, suggesting China’s wave might peak around mid Feb 2023? Need to look at other countries and consider similarities/differences.
Or, if you go by official Chinese data, the current wave has already peaked and is down a lot, and that peak was lower than its mini-wave in early 2022 . . .