Self Organizing Chaos
Xi’s zero-Covid policy sparks economic chaos in China
Szu Ping Chan
The virus situation remains a risk,” said analysts at Capital Economics. “New infections have been climbing again. Even if the current outbreak is contained, the zero-Covid strategy means that targeted lockdowns will remain commonplace, depressing consumer activity and spending.
“The slow progress in expanding vaccination among the elderly means the zero-Covid policy won’t be abandoned any time soon.”
In a bid to calm markets, China’s central bank trimmed interest rates for the second time this year, despite fears of rising inflation. The People’s Bank of China cut two key lending rates, though Craig Botham, chief China Economist at Pantheon Macroeconomics says the move will do little to support consumer spending, because there just isn’t any appetite to borrow.
“The People’s Bank of China cut interest rates [we] imagine because they felt like they had to be seen to do something, rather than because they think it will have much effect,” he says.
“Availability of funds is not the problem, loan demand is. Equally, the price of credit is unlikely to be the deciding factor, particularly with interbank rates so low.”
An even bigger worry is the growing number of young people who cannot find a job. A world where policymakers keep switching economic activity on and off has caused uncertainty among businesses. Many can’t be sure how many staff they’ll need today, let alone in a year’s time.
Around 11m Chinese graduates entered a very uncertain jobs market this year, which has pushed up youth unemployment to 19.9pc – the highest level in years.
There is also China’s rapidly deteriorating property market, which threatens to exert a long-term drag on Chinese growth. House prices are falling, and attempts to engineer a soft landing have been challenging.
Official data on Monday showed property investment between January and July dropped 6.4pc compared with the same period in 2021, accelerating the 5.4pc decline marked in the first half of the year.
Lawrence Brainard, an economist at TS Lombard, says local governments have been using cash to prop up projects and “keep prices from falling precipitously”.
But he adds: “The option of defaulting has become increasingly attractive to developers, since so far there appear to be no consequences from walking away from troubled projects.”
Uncertainty surrounding the market means nobody is building at the moment. And an increasing number of Chinese homebuyers are refusing to pay mortgages on properties they have bought because developers can no longer finish them.
The number of new construction projects is now lower than the trough reached in 2020, when the pandemic first hit activity.
Most analysts believe China has the financial firepower to avoid a widespread property crash. But Mr Brainard believes the alternative may be worse.
….
Raymond Yeung, chief China economist at ANZ Bank, says China must reverse its strict Covid rules if it is to avoid a self-inflicted downturn.
“Authorities’ zero-tolerance approach will continue to restrict social mobility and interrupt business activities,” he says.
This is beginning to have a suspicious odor to it all…maybe a flushing is the next step.
https://www.telegraph.co.uk/business/2022/08/15/xis-zero-covid-policy-sparks-economic-chaos-china/