China’s reopening from COVID isn’t going well

China’s reopening after relaxing its draconian COVID policies isn’t going well. In fact, the early experience appears even worse than even the pessimists had predicted.

Infections are soaring, hospitals are being overwhelmed, there are shortages of medications, the streets of major cities are deserted and economic activity is being as disrupted by the reopening as it was by the harsh former “zero COVID” approach to the pandemic.

The abrupt reopening in response to the wave of protests in major cities against the previous approach to outbreaks of COVID, which included widespread and severe lockdowns, has revealed a complete lack of preparation by authorities that have had the best part of three years to put the infrastructure, people and supplies in place to manage living with COVID.

That suggests that, if not for the protests, China’s authorities were convinced the zero COVID approach could and would be maintained indefinitely.

People in Beijing queue for a nucleic acid test. Attempts to ease strict zero-COVID rules have coincided with the worst outbreak in six months.Credit:Getty

The absence of measures to manage the fallout from a reopening is revealing, both in terms of the authorities’ sensitivity to the civil unrest the previous policy generated and the lack of foresight from an authoritarian leadership that relied on the lockdowns rather than effective vaccines, high vaccination rates and some level of community immunity to moderate the effects of the shift in approach.

China’s vulnerable elderly have low vaccination rates and its homegrown vaccines are less effective than the western mRNA vaccines that China has eschewed.

It’s not surprising that infection rates have exploded and that, anecdotally (China’s official COVID death toll since the reopening is two!) the number of COVID-related deaths is mounting rapidly.

Whether China can get control of the outbreak to the point where it can live with COVID is a critical question, not just for the Chinese, but the rest of the world and, because of its role as a major resource exporter, Australia in particular.

China’s economy has been flatlining because of the rolling lockdowns of the previous policy and the reopening is, because of the explosion of infections, causing further disruption to factories, supply chains and consumers.

For Australia, of course, a stronger growth rate in China means higher prices for iron ore and other resource and agricultural commodities

With the growth in factory output more than halving in November, from 5 per cent to 2.2 per cent, retail sales plunging 5.9 per cent, auto sales 9.9 per cent, property investment 9.8 per cent and residential property sales 28.4 per cent, China’s economy was spluttering badly even before a reopening.

If the authorities can get control and China finds a way to live, however uneasily, with COVID it could be expected to lift its growth rate from the depressed (by China’s standards) 3 per cent or so expected this year to something closer to the 5.5 per cent originally targeted for this year.

That wouldn’t necessarily be good news for the rest of the world as China’s meagre growth has impacted its demand for resources and reduced the volumes of goods and raw materials flowing through global supply chains.

A rebound in its economy could add to global inflationary pressures – it could have a significant impact on oil and other commodity prices – and complicate efforts to drive down inflation in the major western economies, delaying the moment when interest rates stop rising.

For Australia, of course, a stronger growth rate in China means higher prices for iron ore and other resource and agricultural commodities even where those commodities, like coal, have been sanctioned by China.

Foreign Minister Penny Wong says Australia’s trade dispute with China was top of the agenda in her discussions with her counterpart, Wang Yi.Credit:DFAT

For the Australian economy, China’s growth rate is far more important than whether Penny Wong’s visit to China, however significant it might be in restoring some semblance of civility to the relationship, helps lead to an easing of the bans on some Australian exports.

Australian exporters impacted by the sanctions have found other markets – coal exporters, in by far the biggest sector exposure to the bans, have experienced booms in demand and prices – and, after their experiences, are unlikely to restore their dependence on China even if the trade tensions are defused.

Iron ore prices, while well down on the $US160-plus a tonne prices achieved in April, have started rising again in anticipation of action by Beijing to stimulate the economy.

At China’s annual Central Economic Work Conference late last week Xi Jinping set out Beijing’s agenda for 2023. Economic stability was the key priority, with proactive fiscal policy and prudent monetary policies to be deployed to boost domestic demand as the leadership focuses on reigniting “reasonable” growth.

Chinese President Xi Jinping was running out of pandemic options.Credit:AP

No GDP growth rate target has yet been set for 2023, but it is expected that it will be around 5 per cent, with more fiscal stimulus and the People’s Bank of China pumping more cash into and through the state-owned banking system to promote more activity and to try to stabilise a still-declining property sector.

It was notable that, at the conference, Xi was quoted by state media as saying he had always supported private enterprises and his senior leaders said they would implement policies to encourage private businesses, broaden access for foreign companies and support internet technology platforms to play a leading role in economic development.

Xi Jinping’s crackdown on the big tech platforms, notably Alibaba and Tencent, and the imposition of leverage limits on property developers (which triggered a meltdown in a sector that has contributed about 30 per cent of China’s economic growth) have played a significant role in China’s economic slowdown.

It appears that Xi’s mistrust of private enterprise, particularly big tech and property companies, is thawing as all other issues become secondary to restoring economic growth in a challenging domestic and global environment.

China’s officials are hoping that the initial waves of infections from the reopening are a short-lived phenomenon and that by the second quarter of next year economic growth will be accelerating in what one official described as a “J-curve.”

That does, of course, pre-suppose that, after a few more months of COVID-related turmoil and economic disruption, infection rates will be falling, the healthcare system will start coping and businesses and consumers will start feeling, and acting, more confident about their futures.

The alternative, of course, is not a J-curve but an S-bend if the authorities can’t get COVID under control and the economy continues to slide.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.

Most Viewed in Business

From our partners

Source: Read Full Article