While much of the world has all but left the worst of the pandemic in its midst, China is still dogmatically trying to contain any outbreaks of Covid-19 with its seemingly endless Covid Zero policy. The damage that these measures seem to have done to the local economy have been widespread. Factory output and major industries have been subdued, supply chains out of the country have slowed, the yuan is losing value, there’s a property market crisis, and it’s taken a hard toll on the public – not forgetting that consequences aren’t only local, they’re felt on the international stage.
The 20th National Party Congress is coming up on the 16th October, and Xi Jinping is expected to extend his rule another five years. Some believe the Covid-19 policies could relax after this point, and the economy should slowly recover as a result. When the outlook and markets do recover, there will inevitably be opportunities for traders to capitalize during the rebound. Investing online has never been easier with trading applications, professional analysis, and calendars to help you keep up to date with all the latest economic updates out of China and around the world.
Stocks and Yuan
Chinese stocks listed in Hong Kong fell lower again on Friday 30th September, with the Hang Seng Index dropping 14% in the month of September to one of its lowest values ever recorded and the CSI 300 losing around 6% in September and 20% this year. Bloomberg reports that it’s difficult to see how things can improve until the Covid-19 Zero policy is relaxed, but there are those who doubt restrictions and lockdowns will be removed until mid-2023, further dampening prospects for growth.
Reuters reported that Chinese regulators for securities had unofficially told some local fund managers and brokers not to encourage large sales of shares in the lead up to the Communist Party Congress this month. The “politically sensitive” directive would essentially stabilize the market and prevent fluctuating prices in the short term. Managers that did not receive the advice apparently looked at the idea as a ‘natural responsibility.’
In the meantime, the yuan has lost over 11% to the US dollar this year, and is looking like suffering its largest annual losses since the mid 1990’s. It’s also reported that the Chinese central bank may intervene, as it has requested that some major state-owned banks sell off their dollars for the local yuan in overseas markets, as it battles to prevent further decline of the currency. A move that would potentially be significant for both the yuan and the dollar.
So China is facing a very delicate balancing act, as it navigates the health of the economy with, in comparison to most countries, what appears to be a very harsh and outdated policy designed for the health of its people. Only after the policy ends will the economy have any hope of making a comeback, and when it does, they will be hoping their biggest importers haven’t secured other means of filling their countries’ manufacturing demands.